Home loans are suitable financing options that help individuals to buy their desired property or building. However, individuals opting for home loans should know how to calculate home loan EMI to plan their expenses accordingly. It will also help them choose the loan amount as per their repayment capability and eligibility.
How to calculate home loan EMI?
Home loan EMI is calculated by using the following formula:
P x R x (1+R) ^N / [(1+R) ^N-1]
Here, P stands for the principal loan amount, N stands for loan tenure in months and R stands for monthly interest rate. R is calculated as annual rate of interest / (12×100).
For instance, if the rate of interest is 7.2% p.a., then r = 7.2/ (12×100) = 0.006
For a person availing a loan of Rs.10, 00,000 at an annual interest rate of 7.2% for a tenure of 120 months (10 years), home loan EMI will be calculated in the following way:
EMI= 10, 00,000 x 0.006 x (1 + 0.006)120 / ((1 + 0.006)120 – 1) = Rs.11,714.
- The total amount payable to the lender will be Rs.11,714 x 120 = Rs.14, 05,703.
- Principal loan amount is Rs.10, 00,000
- Interest amount to be paid will be Rs.4, 05,703
However, manually computing the home loan EMI can be time-consuming, and prone to miscalculation. So, borrowers can calculate home loan EMI using online calculators for an errorless computation.
What are the factors affecting home loan EMIs?
Here are some of the factors that can affect a borrower’s loan EMI:
- Principal amount: The principal amount or the sanctioned loan amount is directly related to the monthly payable EMI. However, the sanctioned principal amount depends on the applicant’s eligibility, which can be calculated using a home loan eligibility calculator.
- Tenor: A longer tenor helps reduce the EMI amount; however, a shorter tenor will decrease the total payable interest amount.
So, if borrowers need to learn how to calculate loan EMI, they can check out the procedure mentioned above and proceed. It will help them assess their repayment capacity and budget and plan accordingly.
