How to Calculate Home Loan EMI: A Guide

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How much a housing loan an aspiring borrower can comfortably afford is influenced by the equated monthly installments (EMIs) they have to pay. The EMI on a home loan in India needs to be computed while availing of a new loan and also must be executed when transferring it to a new lender. Here is how a borrower can calculate the EMI they’ll have to pay on a home loan in India.  

#1 Seek the Best Interest Rate

While aspiring borrowers always seek the lowest interest rate possible on home loans, it is not that easy to secure one owing to a multitude of factors. Each lender has its rules about the property type and borrower segment it is willing to lend to. For instance, many home loan lenders offer the best and lowest home loan interest rates to only salaried customers. On the other hand, many lenders offer the lowest and best deals to borrowers with high credit scores. Female borrowers are often offered a special home loan interest rate by several lenders.

#2 Decide the Home Loan Amount 

To have a fair idea regarding home loan eligibility, a housing loan borrower must start with the total income they earn in a year. They can secure a housing loan of about five times their net annual income. This may vary from one lender to another and also be based on several factors such as a borrower’s profession and also their repayment capacity. 

Moreover, the housing loan amount depends on the property value. The maximum home loan amount that can be granted is 90% of the value of the property. Although the ultimate home loan amount is assessed based on factors, including the current property value, home loan interest rates, and loan tenors, borrowers can begin with an estimated housing loan amount.

#3 Find the Most Suitable Home Loan Tenor

A home loan is a long-term loan. Some of these loans can go up to 30 years. A borrower must remember that the longer the home loan tenor, the higher the interest amount they will be required to pay. Lenders allow a tenor where repayment of the home loan is expected to be satisfied by the time a borrower reaches 60 years.

How to Calculate Home Loan EMI

#1 Using any standard home loan EMI calculator

Several online home loan calculator can help calculate a housing loan EMI. These can be found on aggregator websites and portals of lenders, such as NBFCs, banks, and housing finance companies (HFCs). 

#2 Using the MS Excel formula

If home loan borrowers want to do calculations on MS Excel, they can use the following formula to calculate home loan EMIs:

EMI = [P x (R/100) x (1+R/100) ^n] / [(1+R/100)^ n-1]

Here, 

P = Principal home loan amount

R = Rate of home loan interest per month

N = Number of monthly installments

An example:

Let us assume the following:

P = Rs.30 lakh

R = 9% per annum = 9/12 = .75% monthly

N = 180 months

EMI = ((300000*.75 /100*(1+.75 /100) ^180/((1+.75 /100)^180-1))) = Rs.30,428

Home Loan EMI Calculation in Three Easy Steps

Step 1 – Insert the home loan amount into the calculator

Enter the home loan amount you desire to avail of from a housing loan in the calculator. This marks the first step of EMI calculation.

Step 2 – Insert the home loan repayment tenor

Home loan lenders permit long repayment tenors for the repayment of the home loan. Assess how long it would take for you to repay the loan. Then, enter the home loan repayment tenor, in years, into the housing loan EMI calculator.

Step 3 – Insert the home loan interest rate

Find out the housing loan rates charged by a lender you have chosen. Enter the rate into the calculator to complete the last step. Once you have entered the values, click ‘calculate’ or and the calculator will reflect the EMI payable for the home loan. You can also use the calculator to adjust the EMI per your suitability. If the EMI calculated is high and you wish to bring it down, you can:

  • Lower the home loan amount, and/or
  • Increase the home loan repayment tenor
  • If you think that the EMI is low, you want to pay more, you can:
  • Increase the home loan amount, and/or
  • Lower the home loan repayment tenor

The Final Word

If an aspiring home loan borrower is not so sure about how to calculate home loan EMI, they can simply use a home loan EMI calculator. A loan EMI calculator helps make the financial planning hassle-free by:

  • Providing an idea about the EMI outgo in advance
  • Helping choose the ideal lender for them
  • Assisting in picking the most appropriate loan amount 
  • Allowing them to go for the most suitable home loan tenor
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