How Does a Housing Loan EMI Calculator Work?
Housing loans are one of the most sought-after financial solutions when looking to purchase a house. With the increasing value of the property and home loan interest rates today, paying a hefty EMI can be hard to manage. But a housing loan EMI calculator can make all the financial planning easier. Read on to know how housing loan EMI calculator works.
What is a Housing Loan EMI Calculator?
An EMI calculator for home loan is an online tool that helps calculate the monthly EMIs that need to be paid on the housing loan. It takes into account three factors – principal amount, loan interest, and tenor – to present an estimate of the housing loan EMI. A housing loan calculator is known for its speed, accuracy and ease of accessibility. All you need to do is enter the values and the calculator will instantly show you the results on screen.
How Does a Home Loan EMI Calculator Work?
The estimations of monthly EMIs on a calculator are done on the basis of a mathematical formula. Here is how housing loan EMI calculator works –
Monthly EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
where the variable ‘P’ denotes the ‘Principal’ or the original loan amount on which interest calculated
‘R’ implies the ‘Rate of interest’ and
‘N’ stands for the ‘Number of years’
Since home loan EMIs paid on a monthly basis, the tenor or duration calculated in terms of months. The EMI value changes with the change in any of the above variables.
So, let’s say, if you take a housing loan of INR 40 lakh with 12% interest for a period of 15 years, the estimated EMI will be –
P = INR 40 lakh, R = 12/100/12 or 0.01 (in months), N = 15 years or 180 months
EMI = [4000000 x 0.01 x (1+0.01)^180] / [(1+0.01)^180-1]
EMI = INR 48,007
Thus, the monthly payable EMI for the home loan will be INR 48,007 while the total interest will be INR 46,41,210.
Top Benefits of Using a Housing Loan EMI Calculator
Now that you know how housing loan EMI calculator works, here’s a look at the several benefits it offers. When you apply for home loan –
Gives Accurate Breakup of Your Finances
A calculator for home loan EMI helps you understand the different financial charges. Which associated with the loan, for instance, loan processing fees, stamp duty fees, the total payable interest etc. Lenders typically present these substantial charges as a percentage of the principal loan. Having an idea of the actual loan value without any additional charges can help determine the loan terms.
Saves You from Manual Calculations
Calculating home loan EMIs manually can be tedious. Owing to the complex calculations, it is common to make mistakes, which can put you in a tough spot when you apply for home loan. But with a housing loan calculator, one can rest assured. That the calculations are on point and the results are accurate. It also helps save valuable time unlike in the case of manual calculations.
Helps Compare Current Home Loan Interest Rates
Different lenders offer different rates of interest on home loan. The online calculator enables you to compare current home loan interest rates. Which offered by the top lending institutions in the market so you can make an informed decision.
Helps in Financial Planning
A housing loan calculator can help with budgeting and planning your finances in accordance with the payable EMIs. Once you know the monthly EMI estimate, you can put aside a certain amount that does not affect your essential monthly expenses.
Helps Manage Other Loans
Borrowers who have multiple loan EMIs to pay off can turn to a home loan EMI calculator. To take other loans into consideration and decide on a tenor and interest rate based on the calculations. The tool can also help calculate additional charges for home loan foreclosure. If you have enough funds to repay the loan before the expiry of the tenor.
Once you know how housing loan EMI calculator works and benefits borrowers in the long run, make sure you do your research right and settle for a lender offering the best home loan interest rates today.