Home loan borrowers must make sure to calculate equated monthly instalments (EMI) as it provides a clear of how much a person has to pay in EMIs each month. Calculating EMI allows you to make an informed decision about how much you have to pay each month so that a monthly expense can be planned accordingly.
This aids in determining the loan amount that can be obtained, as well as the required own contribution and property cost. As a result, understanding your EMI is critical for determining your home loan eligibility and better planning your home purchase.
What is EMI
EMI stands for ‘Equated Monthly Installment,’ which is the amount you will pay to us on a monthly basis until the loan is fully repaid. It entails repaying the principal as well as paying interest on the outstanding balance of your home loan.
How is EMI on loan calculated?
, below are the simple steps to calculate your EMI.
Formula for EMI Calculation is –
P x R x (1+R)^N / [(1+R)^N-1] where-
P = Principal loan amount
N = Loan tenure in months
R = Monthly interest rate
The rate of interest (R) on your loan is calculated per month.
R = Annual Rate of interest/12/100
If rate of interest is 7.2% p.a. then r = 7.2/12/100 = 0.006
For example, If a person avails a loan of Rs 10,00,000 at an annual interest rate of 7.2% for a tenure of 120 months (10 years), then his EMI will be calculated as under:
EMI= Rs 10,00,000 * 0.006 * (1 + 0.006)120 / ((1 + 0.006)120 – 1) = Rs 11,714.
The total amount payable will be Rs 11,714 * 120 = Rs 14,05,703. Principal loan amount is Rs 10,00,000 and the Interest amount will be Rs 4,05,703.
It’s important to choose the proper loan amount with an EMI that fits your budget and a repayment period that meets your life goals. You will have to experiment with several combinations to discover the best one. Manually performing this can be time consuming.
Click here to use ET Online home loan calculator.
With RBI signalling that the time of low interest rates is over, many banks have started hiking interest rates on loan including home loans. So it would be prudent to find out how much your home loan EMIs will go up once your bank’s hike will come into effect.
According to HDFC website, these are some important FAQs
1. When does my home loan EMIs start?
EMI’s begins from the month subsequent to the month in which disbursement of the loan is done. For loans for under-construction properties EMI usually begins after the complete home loan is disbursed but customers can choose to begin their emi’s as soon as they avail their first disbursement and their EMI’s will increase proportionately with every subsequent disbursement. For resale cases, since the whole loan amount is disbursed in one go, EMI on the whole loan amount start from the subsequent to the month of disbursement
2. What is a pre-EMI interest on a home loan?
Pre-EMI is the monthly payment of interest on your home loan. This amount is paid during the period till the full disbursement of the loan. Your actual loan tenure — and EMI (comprising of both principal and interest) payments — begins once the Pre-EMI phase is over i.e. post the loan has been fully disbursed.
3. How does your home loan repayment work?
A home loan is usually repaid through Equated Monthly Instalments (EMI).The EMI comprises of the principal and interest components which are structured in a way that in the initial years of your loan, the interest component is much larger than the principal component, while towards the latter half of the loan, the principal component is much larger.
4. What is the maximum home loan that I can obtain?
You are required to pay 10-25% of the total property cost as ‘own contribution depending upon the loan amount. 75 to 90% of the property cost is what can be availed as a housing loan. In case of construction, home improvement and home extension loans, 75 to 90% of the construction/improvement/extension estimate can be funded.