How to Calculate Home Loan EMI: Here is a Step By Step Guide

While availing a home loan, you should make a note of the important aspects such as the home loan interest rate, flexible repayment option, low processing fee, and long tenure. Interest rates also play a crucial role in defining your monthly installments. Lower the interest rate, lower would be the monthly EMI. 

How to Calculate Home Loan EMI: Here is a Step By Step Guide

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The real estate sector has witnessed a massive price hike in recent years. This has led to an increasing demand for home loans. As a result of this, a large number of banks and other financial institutions provide home loans with attractive features. For individuals who are looking forward to purchasing a house, a home loan can prove to be of great help. However, while availing a home loan, you should make a note of the important aspects such as the home loan interest rate, flexible repayment option, low processing fee, and long tenure. Interest rates also play a crucial role in defining your monthly installments. Lower the interest rate, lower would be the monthly EMI. 

Before availing a home loan, you should evaluate your repayment capacity and opt for a loan amount accordingly. Additionally, you should also calculate your home loan EMI beforehand.

Calculating the home loan EMI beforehand:

  • While availing a home loan, you can choose between a fixed or floating interest rate. If you settle for a fixed rate of interest, the rate is fixed throughout the loan tenure and consequently, the EMI stays constant throughout.
  • If you opt for a floating interest rate, the rate may change according to the market fluctuations. This will also lead to a change in the monthly installments. Therefore, in order to keep the EMI and the home loan amount constant, lenders increase or decrease the loan tenure proportionately. 
  • You can calculate your EMI beforehand with the help of an online home loan EMI calculator. This will allow you to plan your monthly expenses wisely. Since the EMI amount remains the same for most of the tenure of the home loan, you can plan your budget in a much better way. This will allow you to repay your home loan within the stipulated time
  • Having an estimate of your EMI in advance will also allow you to do your prepayment planning. This can help you to reduce your interest payments, thereby allowing you to repay your home loan sooner. 

Steps to calculate the home loan EMI beforehand

You can calculate your EMI with the help of three important parameters i.e. the loan amount, loan tenure and interest rate. You can input these values into the online EMI calculator and get an estimate of your monthly installments. You can also use various permutations and combinations of these three inputs to derive the EMI that best suits your needs. 

The basic formula used by EMI Calculators is:

E = P x r x (1+r)^n/ ((1+r)^n-1)

Where,

  • E stands for EMI.
  • P is the loan amount that you wish to borrow.
  • R denotes the interest rate that is calculated on a monthly basis. It is derived by using the formula r = (annual interest/12) x 100.
  • N is the loan tenure in months. 

Before availing a home loan, it is advisable to compare various loan offers provided by different financial institutions. Make sure that you settle for a financial institution that provides business loans at the most competitive interest rate. Also, do not forget to review the financial institution carefully before availing a home loan  It is recommended to make a note of the prepayment charges, processing fee, and other hidden charges before settling with that particular lender. This will help you avoid any inconvenience in the later stages.

Calculating your EMI beforehand can be extremely beneficial in making timely loan repayment. With leading banks and other NBFCs, you can easily avail a home loan through a hassle-free online application process. Flexible eligibility criteria, minimal documentation, and attractive interest rate are some of the other advantages of availing a home loan with leading financial institutions.

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