The purchase of a house is an exciting yet money-involving procedure. The EMI is an acronym for equated monthly instalment, understanding your home loan monthly repayment is critical for financial planning. Maths apart, knowing how to calculate your EMI is a snap.
What is a housing loan EMI?
The question to ask is whether the home loan is a marathon or a sprint. You don’t pay all the money at once but instead in an monthly instalment called EMI.
Principal amount: This portion is the part of the actual loan amount you pay back during each instalment.
Interest: This is the fee or charge which the lender levies for the use of its money.
The Magic Formula: While the formula used to calculate EMI might seem complex, understanding its components makes it a breeze: EMI = [P x R x (1 + R)^N / (1 + R)^N – 1]
Where:
P is the main loan amount.
r (= yearly interest rate/12) is the monthly interest rate.
& the number of monthly payments (the duration of the loan in months).
Decoding the Jargon: Do not let these terms frighten you! Here’s a simplified explanation:
Principal amount: This is the entire amount that you have borrowed from the bank.
Interest rate: This is the ratio of the loan’s value that you pay as interest for taking that money. It’s normally billed annually, but EMI calculations must be done on a monthly basis.
Loan tenure: This is the space of your loan, which is usually expressed in years. After this, if you multiply it by 12 you will have the number of monthly instalments.
Putting it into Action: Let’s say you take a loan of ₹10,00,000 at an annual interest rate of 8% for a tenure of 15 years (180 months). Here’s how to calculate your EMI:
Monthly interest rate: 8 divided by 12 is equal to 0.66%.
Number of monthly instalments: 15 years multiplied by 12 months per year gives 180 months
Plug into the formula: EMI = [10,00,000 * 0.0066 * (1 + 0.0066)^180] / [(1 + 0.0066)^180 – 1]
EMI = ₹9,552.25
Consequently, your EMI is ₹9,552.25 per month. The EMI, which equals Rs. 9,552.25 will be paid monthly for the next 15 years to clear the principal and the interest.
Why is Getting Your EMI Rate Correct?
Budget effectively: You can calculate the monthly outflow for this home loan helping you derive your other expenses easily.
Compare loan offers: Varying lenders provide different interest rates and repayment tenures which may alter the EMI. Computing EMI for all options helps you choose the best loan among the choices.
Negotiate effectively: Armed with your EMI calculations, you can negotiate the rates and terms of your loan with lenders.
Beyond the Formula: The EMI formula is just a step to get you started. Some lenders may add extra costs to their loan packages such as processing charges and prepayment penalties. Hence, add the additional costs to your regular budget when calculating your overall financial contribution.
Helping Hand: Numbers make you listless? You can easily apply for an EMI calculation online many EMI calculators. With just an input of the loan amount, interest rate, and tenure, you’ll get the EMI in just seconds.
Buying your dream home is the next big step. With the help of the EMI calculation, you are able to manage your finances wisely and make informed decisions that will bring you the happiness you are looking for.