Here's Why You Should Calculate EMIs Before Taking a Home Loan

Home Loans are a convenient way of funding a home purchase. Lenders charge a low interest rate on these loans. Further, they come with a long tenor, which makes repayment easy. Home Loans are repaid in the form of EMIs, which constitute an interest component and a principal component. With time, the interest component of the housing loan decreases, and the principal component goes up. Those planning to apply for Home Loan must use a Home Loan EMI calculator to plan their repayment journey.  

A Home Loan EMI calculator is a handy online tool that allows borrowers to work out their Home Loan EMIs for the loan amount they wish to borrow. The calculator is freely available on the internet and is quite easy to use too. All one must do to use this calculator is enter three details: the desired loan value, the desired loan tenor, and the rate of interest that their chosen lender is offering them. Once the user enters these values, the Home Loan EMI calculator displays the borrower’s tentative EMIs as well as their total interest outgo for their desired combination of loan value, tenor and rate of interest.  

Let us now look at the reasons why using a Home Loan EMI calculator would be a good idea before you avail a Home Loan.  

Reasons to Calculate Your Home Loan EMI

1. A Home Loan EMI Calculator Helps You Decide the Home Loan Amount You Can Afford to Take

   Using the Home Loan EMI calculator, a potential borrower can try out various combinations of loan value, tenor and rate of interest to finally reach an EMI value that one can afford to easily repay.

2. It Helps You Understand How Repayments Will Help You Save Money  

   Home Loan EMI calculators also help borrowers understand what the right time would be to make prepayments to avail of maximum benefit. Using a Home Loan EMI calculator, borrowers can understand the impact of a loan prepayment on one’s EMIs as well as the total interest outgo.  

3. It Helps Borrowers Compare Offers from Different Lenders 

   Those availing of a housing loan must talk to as many lenders as possible before signing the Home Loan agreement with any lender. Doing this will help you develop an understanding of what each lender is offering and help you negotiate with different lenders for better Home Loan interest rates. Once you have spoken to your top lenders and received offers from them, use a Home Loan EMI calculator to compare different offers and figure out which one will be the best for them.  

4. The Home Loan EMI Calculator is Quick and Accurate  

   How to calculate Home Loan EMIs? This is a question that we get asked often. The Home Loan EMI calculation formula is a tricky one.  

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

   Here,  

   P refers to the principal amount  

   N stands for loan tenor, expressed in months  

   And R refers to the monthly rate of interest.  

   This formula clearly shows that the formula for calculating EMIs is a tricky one and manually calculating EMIs repeatedly using this formula is nearly impossible. The Home Loan EMI calculator is quick and accurate. It is also free to use. So, borrowers can use it as many times as they like.  

   Also Read: Home Loan EMI Calculator Benefits and It’s Features 

   Now that we are familiar with the benefits of a Home Loan EMI calculator, let us look some tips that will help you avail of a loan at low interest rates.  

Handy Tips on How to Avail of a Low Home Loan Interest Rate

The interest rate is very important when it comes to housing loans. Therefore, borrowers are advised to negotiate and re-negotiate with their lenders and try their best to avail of a loan at the lowest interest rate possible. Here are a few tips to help you avail of a low Home Loan interest rate.  

• To start with, if you want a low Home Loan interest rate, maintain a good CIBIL score. Lenders check a borrower’s housing loan eligibility on various parameters and the most important of these parameters is the credit score. The credit score indicates a borrower’s ability to repay their loan on time. A high credit score, therefore, leads to low Home Loan interest rate.  

• The final interest rate you get on your loan will also depend on the property you are planning to pledge as collateral. Home Loans are secured loans and a high-quality property reduces the risk involved for the lender in lending money. Therefore, when borrowers pledge a property located in a central location and having all modern amenities, they get offered a low interest rate.  

• The longer the tenor of the loan, the higher the risk involved for the lender. Therefore, lenders offer lower Home Loan interest rates in the case of short tenor loans than in the case of long tenor loans.  

• Fixed rate Home Loans are more expensive than floating interest rate loans. Further, the rate of interest charged also depends on the repo rate, which is the rate at which the RBI lends money to the commercial lenders within the country. When the Repo Rate goes up, the Home Loan interest rates go up too and when the Repo Rate goes down, the Home Loan interest rates go down. So, if you are on a floating rate of interest, keep an eye on the repo rate.
• Lastly, the Home Loan interest rates that borrowers get offered also depend on the LTV ratio. Higher LTV ratio carry higher risk for the lender and therefore, lead to a high rate of interest on Home Loans. A low LTV ratio, on the other hand, leads to borrowers being offered low interest rates.  

Final Words

A Home Loan is a safe and convenient way to buy a home. However, do keep in mind that a Home Loan is a long-term financial commitment. Therefore, one must make this commitment after property planning. Before you apply for a loan, use a Home Loan EMI calculator to work out the Home Loan amount and EMIs you can easily afford and apply for this amount only to make repayment stress-free. 

*Terms and conditions apply. 

Also Read: 5 Tips for Lowering Home Loan Interest Rates