by When you take out a house loan, one of the most crucial things to know about is your Equated Monthly Installment. EMI is a consistent monthly payment that includes interest rate and principal amount. Effectively planning your finances and ascertaining whether the loan is within your budget comes down to calculating home loan EMI. Follow this step-by-step tutorial guide to learn how to calculate home loan emi and make better decisions regarding your house mortgage.
Lending institutions use a formula to determine the EMI for home loans. The calculation is based on three main components: principal loan amount (P), interest rate (R), and loan tenure in months (N).
Formula:
EMI = P x R x (1+R) ^N / [(1+R) ^N-1]
Where:
P = Principal loan amount
R = Monthly interest rate (annual interest / 12)
N = Loan tenure in months
How to Calculate the Principal Amount
The principal amount is the total of what you borrow from your lender. This is often the price of your home minus any down payment you have made. If you were planning to apply for 30 lac, calculate home loan emi at an interest rate of 11% per annum, consider the tender of your loan for 20 years.
The interest rate is what you pay for borrowing the money, which means an additional percentage cost below your original loan balance. It has an interest rate that may be fixed or floating.
To calculate home loan emi, you will first have to convert the annual interest rate into a monthly interest rate by dividing it by 12. This can sometimes be written as the formula R = 0.005 or simply 0.5(%).
The loan tenure is the duration of the years for which you will pay back the loan. Generally, it varies between 10 and 30 years. The term you choose has a significant impact on your EMI. Longer terms mean lower EMIs but higher total interest paid, and shorter tenures result in high EMIs with less interest outflow.
You can calculate home loan emi manually or use the formula along with an online tool to get a similar result. You need to put the numbers in, such as the numeral sum, rate of intrigue, and credit residency, respectively, and these devices will proceed with your prompt EMI.
While calculating home loan EMI, note that you may have to pay more for the monthly payouts than just principal and interest. Many lenders wrap up your property taxes, homeowner’s insurance, and private mortgage insurance if you also put less than 20% down into the EMI.
Conclusion
Knowing how much your EMI for the housing Loan will be is very important. You can easily check the estimated home loan EMI of your loan by getting an idea of what goes into the formula and finding out about things like the principal amount, rate of interest, and tenure with a few clicks using online tools.
