Home Loan EMIs: Overview
A Home Loan is a type of secured loan used to finance the purchase of a property, typically spanning several years. Borrowers who have availed of a Home Loan are required to make regular payments every month in the form of Equated Monthly Instalments or EMIs to repay their loan. EMIs consist of the principal amount and the interest payable on the outstanding loan amount.
The three factors that determine the EMI amount are the tenor, principal amount, and interest rate. The interest component is high at the beginning of the tenor and it decreases gradually as the principal component increases.
Home Loan borrowers should know the EMIs in advance to assess the feasibility of a loan. Choosing EMIs that you can comfortably repay ensures easy loan repayment. EMI calculation is essential not only when availing of a fresh loan but also when opting for a balance transfer.
Method 1: Formula to Calculate Home Loan EMI
The formula to calculate your Home Loan EMI manually is as follows:
EMI = P x R x (1+R) ^N / [(1+R) ^N-1]
P = Principal amount
N = Loan repayment tenor in months
R = Home Loan interest rate (monthly)
Method 2: Home Loan EMI Calculator
Calculating the Home Loan EMI amount manually can be tedious and may lead to errors. On the other hand, you can use our Home Loan EMI Calculator and know your EMIs in minutes.
The calculator will display the EMI amount, the total interest amount, and the total amount payable. You also have the option to view a tentative repayment schedule based on the information you provided.
Principal Amount: It is the loan amount extended to you and is usually around 90% of the property value. The remaining amount has to be arranged by the borrower. The calculation of EMI is based on the principal amount and the interest.
Interest Rate: It is the amount charged over and above your principal amount. It depends on certain parameters including your income, credit profile, loan amount, loan type, etc. The lower the rate of interest, the lower the EMI and vice versa.
Tenor: It is the repayment duration within which you need to repay the loan amount. Home loan tenor can be as long as 40 years. The longer the loan tenor, the lower the EMI amount. However, in this case, the overall interest component will be higher.
In addition to the above terms, one should also be aware of a down payment. A down payment is the initial amount of funds that a homebuyer pays upfront when purchasing a property. This payment is typically a percentage of the total cost of the property and is made before securing a Home Loan.
Knowing your repayment schedule beforehand prepares you for your Home Loan application. It also allows you to plan your finances and assess the feasibility of the loan. If you are planning to purchase a property, you should be as precise as possible about calculating your EMIs.
Apply for a Housing Loan today with Bajaj Housing Finance to benefit from competitive interest rates and favourable lending terms.
Frequently Asked Questions
The relationship between Equated Monthly Installments (EMI) and the tenor of a loan is inverse. In general, the EMI amount and the loan tenor have an inverse relationship, meaning that if the loan tenor increases, the EMI amount decreases, and vice versa. It's important to note that while a longer tenor may offer lower EMIs, it also means paying more interest over time. Borrowers should carefully consider their financial situation, income stability, and long-term interest cost implications before deciding on the loan tenor.
Yes, it is possible to increase your loan Equated Monthly Installment (EMI) amount. However, this typically requires making a request to your lender or financial institution and entering into a revised agreement. It is advisable to contact your lender directly to discuss your specific requirements and understand the procedures and implications associated with increasing your loan EMI amount.
Reducing the tenure of your home loan can help you pay off your debt faster and save money on interest. You can reduce the tenure by – increasing your down payment, selecting an overdraft facility, increasing your EMI payments, considering pre or part payments, requesting for a loan restructuring or refinancing your loan.
The EMI (Equated Monthly Installment) formula is used to calculate the fixed monthly payment amount that a borrower needs to make towards a loan. EMI = P * r * (1 + r)^n / ((1 + r)^n - 1)
Where: EMI = Equated Monthly Installment, P = Principal Loan Amount, r = Monthly Interest Rate (annual interest rate divided by 12 and converted to decimal) and n = Loan Tenure in months
