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Home Loan EMI Calculator: How It Work?

· home loan,home loan emi

With the market flooded with a number of Home Loan options; a Home Loan calculator becomes a must-have. It allows first-time or even repeat borrowers to quickly and easily work-out their EMIs to make informed decisions.

It is important to note that a lender is allowed to give only 80% of the property value as loan called the principal amount. Interest rate is applied on this principal.

There are three important components of an EMI loan calculator.

Principal Amount

Banks and NBFCs offer up to 80-85% of the property value as your Home Loan. EMIs are highly dependant on this amount. For instance, if the value of property is Rs. 60 lakh, you are eligible for a loan of up to Rs. 50 lakh and your EMI will be calculated as the interest to be paid on Rs. 50 lakh.

Loan Tenor

A short payback period of loan has higher EMI values, while, long payback period does the opposite. But, the opposite trend is observed for interest rate. So, for a Rs. 50 lakh loan if the tenure is 10 years, the EMI to be paid will be higher, but it will reduce if the tenure is increased to 15 years.

Interest Rate

There are two types of interest rates - fixed and floating. Both with their own pros and cons. Therefore, it is important to choose wisely because a slight up or down shift will directly affect your EMI. Remember, for floating, the EMI calculated will be on the current interest rate, which may change in the future.

The formula used for calculating EMI is - EMI = [P x R x (1+R)^N]/[(1+R)^N-1] where P is loan amount or principal, N is number of monthly instalments and R is interest rate per month, i.e., let’s say, interest rate per annum is 11% then the value of R is calculated as 11/(12 x 100).

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