A Home Loan is a high-value loan taken for the purchase of a property with a tenor lasting for decades. A borrower stays indebted till both the interest and the principal amount are repaid in full. They are required to make regular payments every month in the form of equated monthly instalments or EMIs.
The three factors that determine the EMI amount are the tenor, principal amount and interest rate. Each EMI is composed of interest and principal components. The interest component is at its highest at the beginning of the tenor and it decreases gradually as the principal component increases.
Home Loan borrowers need to know the EMI value to assess whether they will be able to afford the loan. Hence, deciding the EMI amount is extremely crucial and it is always recommended to choose an EMI that you can comfortably pay every month. EMI calculation is essential not only when availing a fresh loan but also when opting for a balance transfer i.e. switching a loan from one lender to another.
Calculating your Housing Loan EMI is surprisingly easy and does not involve any complex calculations, thanks to availability of online Home Loan EMI Calculators. However, let’s first look at the basic Home Loan EMI calculation formula:
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)
Calculating the Home Loan EMI amount manually can be tedious and lead to more errors. On the other hand, you can use the Home Loan EMI Calculator and get your results in minutes.
The calculator window shows you the final EMI amount and the breakup of your total repayment amount down to how much interest you have to pay upon your principal amount. You also have the option of viewing a tentative repayment schedule based on the information you provided.
Principal Amount: It is the loan amount that the lending institution extends, which is usually around 80% of the property value. The remaining 20%, you will have already paid as a down payment. The calculation of EMI will be based on the principal amount and the lender will charge interest on the same.
Interest Rate: It is the rate your lender charges on the principal amount. It varies from lender to lender and depends on certain parameters like your income, your credit profile, loan amount, loan type etc. Therefore, the lower the rate of interest, the lower the EMI and vice versa.
Tenor: It is the repayment duration that your lender will allow for the repayment of the loan. Home loan tenor can be as long as 30 years or even more. The longer the loan tenor, the lower the EMI amount but the overall interest component will be higher.
Down Payment: In simple terms, a down payment is that portion of funds which you will have to arrange on your own before approaching a lender for a loan. It is the amount of upfront payment that you will have to pay to purchase the property, which is usually 20% of the property value.
Having a repayment schedule prepared before you make your Home Loan application allows you to tailor your Home Loan request to your repayment capacity. Here are some other benefits of calculating your Housing Loan EMI beforehand:
- Helps you choose a feasible Home Loan amount
- Helps you pick a comfortable repayment tenor
- Helps you plan your finances in advance
Apply for a Housing Loan today with Bajaj Housing Finance to benefit from competitive interest rates and favourable lending terms.
Your loan EMIs comprise of the principal amount and the interest component. Calculating your EMIs as accurately as possible helps you to plan your present and future expenses. Since your EMIs are linked to the Repo Rate, you also need to consider the future costs associated with it. If you are planning to buy a house with all your savings and all your income at stake, every penny saved becomes crucial to you - which is why you need to be as precise as possible about calculating your EMIs.
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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
