A Comprehensive Guide to Using Home Loan EMI Calculator

A home loan is an easy way to fund your dream of purchasing a house without burning a hole into your entire savings. Finding the right lender for funding your house purchase is very important.

Similarly, a home loan EMI calculator plays a significant role in helping you secure the right lender.

What is a Home Loan?

A home loan is a sum of money borrowed from a bank, NBFC, or an online lender to purchase, renovate, or reconstruct a home. Home loans come with an adjustable or fixed interest rate as well as repayment terms. Generally, home loans are secured, have a longer term, and are easy to obtain.

The property is pledged to the lender as collateral until the loan is paid off. The bank or financial organization will retain title or ownership to the property until the loan is fully repaid, including interest.

On the side of benefits, Section 80EE of the Income Tax Act provides certain tax incentives on home loans. However, only first-time homebuyers are entitled to the income tax deduction for home loan interest.

What are the Types of Home Loans?

Home loans are of different types, as mentioned below:

●     Home Purchase Loan

This is the most common type of home loan employed by borrowers to buy a house.

Many home finance companies, public banks, and private banks provide home loans, which allow you to borrow money to buy the home of your dreams and repay it in monthly installments.

●     Home Improvement Loans

A home renovation loan gives funds to renovate or restore the property.

In case there is a problem with your current property, such as painting the interior or exterior of the home, plumbing, upgrading the electrical system, waterproofing the ceiling, and so on.

●     Home Construction Loan

If you already own a plot of land and need funds to build your home on it, then you can opt for a home construction loan.

●     Home Extension Loan

This form of financing is ideal if you currently own a home and want to add a room or floor.

●     Land Purchase Loan

In this type of loan, you get financing for the purchase of the plot of land on which you wish to build a house and the loan for building that house in one loan.

●     Home Loan Balance Transfer

If your current home loan interest rate is too high or you are dissatisfied with your current lender’s service, you can use this to transfer the outstanding debt to a new lender that offers a lower interest rate and better service.

●     Home Loan Top-up

This type of loan allows you to borrow funds beyond the outstanding balance. It is useful if you need more money than the amount first disbursed.

Home Loan EMI & Its Calculation

A home loan is a huge financial responsibility that can turn into a burden if not planned effectively. Before taking a home loan, it is wise to research different lenders, their interest rates, repayment tenures, and other loan terms since they have a huge impact on your finances until your home loan is paid off.

After availing of a home loan, you will be paying an EMI to the lender until you repay the whole amount plus the interest accrued. Calculate the home loan EMIs of different lenders to make an informed decision.

Formula to Calculate Home Loan EMI

Home loan EMI can be calculated by using the following formula –

E =  P x R x (1+R)^N

      ————————

       [(1+R)^N-1]

Where,

P is the principal amount that is borrowed

R is the rate of interest imposed

N is the tenure in the number of months

Example –

If you borrow an amount of Rs.10,00,000 (P), at an annual rate of interest (R) of 8%, with a tenure (N) of 3 years or 36 months,

Then the EMI to be paid using the above formula is:

E = [10,00,000 x 0.00666 x (1+0.00666)^36] / [(1+0.00666)^36-1] = Rs. 31,336

Hence, the EMI for a Rs.10 Lakh home loan would be Rs.31,336.

The rate of interest (R) is calculated monthly i.e. it is calculated as (Annual Rate of interest/12/100). In this case, it is 8/12/100 = 0.00666.

What is a Home Loan EMI Calculator?

The Home Loan EMI calculator is an online tool that allows borrowers to exactly estimate the amount of EMI they will be paying every month for a certain loan amount.

The EMI calculator takes into account the loan amount, the interest rate offered by a bank or lending institution, and the repayment tenure. It then calculates the amount of EMI a borrower must pay each month based on the set duration.

How to Use the Home Loan EMI Calculator?

You can use a home EMI calculator by following these steps:

Step 1: There are several EMI calculator options online so open the home loan EMI calculator of your choice.

Step 2: Enter the loan amount of loan you wish to borrow.

Step 3: Next, input the repayment tenure, and the interest rate charged by the lender, and submit.

The EMI calculator will display the results instantly. You can also change the inputs and check for different lenders and terms.

What are the Benefits of Using the Home Loan EMI Calculator?

Manually calculating EMI and its components can be exhausting and time-consuming. Moreover, the probability of errors is very high in this situation. Using a home loan EMI calculator can help prospective borrowers save time. It also generates precise results, which is essential for financial planning.

Additionally, a home loan EMI calculator can assist you in the following ways:

• Determine how much to borrow based on your monthly financial obligations
• Ensure timely EMI payments and home loan repayment through adequate financial planning
• Take necessary steps to effectively repay the loan

Related Articles: Income Tax Benefit on Home Loan

To Summarize,

You can use the Home Loan EMI Calculator to help you navigate the complexities of a home loan. In addition to helping you plan your EMIs, it can make homeownership a reality while maintaining your financial stability. Making informed decisions and exercising financial sensibility are essential to a successful home loan process.