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How to Calculate Home Loan EMI using a Housing Loan EMI Calculator

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Housing Loan EMI Calculators are an effective means to computed our Home Loan EMI according to our financial restrictions as levied by the institutions. Click here for more info - – PowerPoint PPT presentation

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Updated: 20 December 2016
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Title: How to Calculate Home Loan EMI using a Housing Loan EMI Calculator


1
How to calculate Home Loan EMI using a housing
loan EMI Calculator
2
  • If you are planning on building your dream house,
    definitely you are also planning for your housing
    loan. When it comes to home loans, certain terms
    like principal, interest, EMI etc are always
    associated. Here's all you need to know about
    EMIs right from the basics and how the entire
    system of housing loan EMI calculator works
    actually.

3
  • What is Home Loan EMI?
  • EMI is the abbreviation for Equated Monthly
    Installments.
  • It is a fixed amount of money that the home loan
    borrower has to pay the lender every month until
    the loan is fully repayed.
  • This overall amount involves the principal home
    loan amount as well as the amount paid as
    interest.
  • The rate of interest and tenure is fixed during
    the home loan agreement.
  • This may be subject to various offers and schemes
    introduced by the bank during the entire home
    loan schedule.

4
  • How is Home Loan EMI computed
  • Home loan EMI calculator uses the formula P x I
    x (1I)N/(1I)N-1 where P is the loan amount
    or Principal, I is the rate of interest an N is
    the number of installments.
  • Suppose, you take a home loan of Rs 1,00,000 at
    12 per annum interest rate with a tenure of 12
    months.
  • Then, according to the home loan EMI calculator,
    you have to pay a monthly installment of Rs.
    8,885 out of which Rs. 6,619 is the total
    interest amount.

5
  • Principal and Interest rate on the
  • Home Loan
  • If you are assuming that the interest and
    principal amount for the home loan is paid in
    equal parts during the entire tenure, then you
    are mistaken.
  • If you observe the housing loan EMI calculator
    formula closely, with a little mathematics, you
    can find out that the interest component repaid
    during the initial years of the home loan tenure
    is higher than the principal component.
  • Contrary to that, the principal amount accounts
    for a higher fraction during the later period.
  • The interest repaid gradually decreases every
    passing month whereas the principal amount goes
    up.
  • Thus, a larger home loan like an amount of 30
    lakhs for a longer tenure, say 20 years, will end
    up in a larger interest amount to be paid by the
    borrower.

6
  • Is EMI fixed or does it change during the tenure
  • Your home loan EMI may change subject to certain
    conditions. Like, if you have opted for a
    floating interest rate.
  • In floating interest rate, the rate of interest
    on your home loan fluctuates according to the
    market conditions.
  • If the interest rate fluctuates, obviously your
    home loan EMI will follow the same pattern. Or,
    if you choose to prepay your loan during the
    tenure.
  • Prepaying your home loan decreases the principal
    amount, hence the amount paid as interest will
    also decrease as the interest will be calculated
    on the new principal amount of the home loan.
    Alternatively, if you opt for a progressive EMI.
  • This option is offered by many banks these days.
    If your monthly income increases during the home
    loan tenure, you may choose to increase your EMI.

7
The Cons
  • Ultimately, a home loan is a burden.
  • Unless you are reaping certain benefits out of
    it, may be tax exemption, it is always better to
    repay the loan as soon as possible.
  • It is also advisable not to reduce your EMIs even
    if the rate of interest on the home loan falls
    during the tenure because it would do you no good
    in the long run.

8
  • Is EMI fixed or does it change during the tenure
  • Your home loan EMI may change subject to certain
    conditions. Like, if you have opted for a
    floating interest rate.
  • In floating interest rate, the rate of interest
    on your home loan fluctuates according to the
    market conditions.
  • If the interest rate fluctuates, obviously your
    home loan EMI will follow the same pattern. Or,
    if you choose to prepay your loan during the
    tenure.
  • Prepaying your home loan decreases the principal
    amount, hence the amount paid as interest will
    also decrease as the interest will be calculated
    on the new principal amount of the home loan.
    Alternatively, if you opt for a progressive EMI.
  • This option is offered by many banks these days.
    If your monthly income increases during the home
    loan tenure, you may choose to increase your EMI.
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