Applying for a home loan? Start looking for the best options from the plethora of mortgage options that best suit your budget and other needs.
Home loans fulfill your dream of getting your own house, but if it comes along with convenient repayment options and tax incentives, it is surely the cherry on the cake.
The amount of home loans depends primarily on the amount of EMI you can pay. You must assess the feasibility of your principal amount by calculating the monthly EMI of your home loan manually or using a housing loan EMI calculator.
You must find out if you can pay the loan and its associated EMI from your current income. Let's look at how to get accurate home loan EMI calculations.
How To Calculate Home Loan EMI Payments:
When you calculate the EMI of your home loan, you have to include essential components like the loan term, principal amount, and the rate of interest.
The financial institution provides an amortization schedule and a depreciation schedule. With this, you get a fair idea of how much your monthly EMI contributes to interest and principal. You can also find out the corresponding balance each month.
How To Calculate Your Tentative Home Loan EMI:
The formula used to calculate home loan EMI is as follows:
P x R x (1+R)^N / [(1+R)^N-1]
P - Principal loan amount
N - Loan tenure in months
R - Monthly interest rate
Let's take a look at the three components that you enter into your housing loan calculator in detail:
Principal Amount:
You must decide how much loan amount you need. Remember that the lender will only sanction 70% to 90% of the total amount; you might have to shell out the rest from your savings.
Another point to consider is that you may be eligible for a home loan amount five times your net annual income. This depends on the lender and other factors, such as your job role, property valuation, and repayment capacity.
Interest Rates:
When understanding how to get a home loan and calculating your EMI, you must fill in the rate of interest offered by the financial institution. This can vary from person to person depending on your job, age, gender, income, credit history, and other factors.
You must apply the rate of interest that has been confirmed by the lender or use a higher rate to be on the safer side.
All borrowers look forward to the lowest mortgage rates offered, but this may depend on the rules of real estate and borrower segments. For example, if you have a very good credit rating, you may be offered a lower interest rate.
Tenure of Home Loan:
Home loan tenure can range from 3 years to 30 years. Therefore, choosing the term or loan period is advisable when calculating EMI manually or using an online housing loan calculator. Find the right term for your loan, and remember that the longer the term, the higher the interest rate will be.
Generally, you get home loans for the number of years it takes you to reach the age of 60. For example, you can be eligible for a 30-year home loan tenure if you are 30 years old and only 15 years of the loan term if you are 45 years old.
Other Factors to Keep In Mind:
A basic rule that you must follow is that the sum of EMIs for all loans that you are paying should not be more than 50% of your monthly income. If this is the case, there are chances that your home loan time period may get extended, or there could be a reduction in your principal loan amount.
If your monthly income increases, the deals become more flexible.
The EMI formula is tricky, so avoid manual calculations. Understand your monthly EMI obligations and depreciation schedule using online financial tools such as an EMI calculator. You can go online and learn how to get a home loan and find several online calculators on lender websites.
Benefits Of Using Housing Loan Calculators:
- These are always reliable and provide the correct results
- They are accurate and fast in revealing your tentative monthly EMI and recovery plan
- These can provide results in seconds, so you can punch in various combinations of interest rate, principal amount, and duration to find the one that suits you best
- The EMI Calculator allows you to compare home loan offers from various lenders so you can choose the one that best suits your budget and needs
- Housing loan calculators are free and easy to use
Conclusion:
Taking a home loan is a big financial commitment, and thus it requires proper planning in advance. This also means taking a note of your savings, monthly income, and, most importantly, the monthly EMI – you must know ways to calculate the home loan EMI to figure out how best it can fit into your monthly income budget.
The techniques mentioned above can come in handy in helping you calculate your tentative home loan EMIs.
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