The need to build residential neighborhoods, business districts, and vital public infrastructure is driving up demand for land as our population grows. Every human being needs shelter, and every individual has his or her dream of having their own house. But with this high increase in land price, without funding, you may not be able to afford the one you need. There are various lenders which support you, but you need to analyze the interest rate that you have to pay for months over several years. This blog will help you to decide how to calculate the EMI on your housing loan.
The EMI Calculation Formula
The standard mathematical formula that helps you calculate the EMI for your housing loan is as follows:
You just simply put the numbers to get the desired value
Formula: EMI = P x R x [{(1 + R)^N} / {1 – (1+R)^N}]
P is the principal loan amount.
N = Months of loan tenure
R is the interest rate each month.
Your loan’s interest rate (R) is determined monthly.
R = Interest Rate per Year (12/100)
The value of R, given an annual interest rate of 7.2%, is 7.2/12/100 = 0.006.
For instance, if someone takes a loan of ₹15,00,000 at an annual interest rate of 7.2% for 240 months (20 years), the monthly EMI they would need to pay works out to: EMI = ₹15,00,000 × 0.006 × (1 + 0.006) ^ 240 / ((1 + 0.006) ^ 240 – 1) = ₹11,682.
The total repayment amount comes to ₹28,03,680, which is the result of paying ₹11,682 every month for 240 months. Out of this, ₹15,00,000 is the actual loan amount borrowed, while ₹13,03,680 is the additional cost paid as interest over the 20 years.
How to Calculate EMI Manually
The Excel sheet’s EMI calculation formula assists you in determining the present value of payments (PMT), a more straightforward method of EMI computation.
The equation r, nper, and pv
Where,
Here, R represents the interest rate of 7.2%.
The number of months over which the money must be paid is represented by NPER (240 months).
PV represents the loan’s present value or the principal amount of Rs 15,000,000.
The Stepwise Process: The interest rate and tenure in years are the primary factors that determine the loan amount. Remember to include the currency and the percentage sign when recording the interest rate. Here, you can alternatively use the phrase in years.
Using the PMT () function in your excel sheet, you can find your EMI value as below:
Consider loan amount = 15,00,000, interest rate = 7.20% and tenure = 20 years
Now applying numbers in the formula, PMT= r, nper, pv. The loan tenure needs to be keyed in every month.
=PMT(7.2%/12,240,1500000)
= Rs.11,810.24
After pressing the equal sign, you get your payable EMI value for every month.
Tools to Calculate EMI
The online calculator is used to calculate the interest rate for your housing loan in very simple steps:
In the interface, just enter the principal amount, annual interest rate and loan tenure; it will show you the total repayable amount, the interest you are going to pay during the tenure period, as well as the monthly EMI you are going to pay every month. This simple calculation will give you the results in seconds for fast decision-making.
For example, if you enter the loan amount of Rs. 15,00,000, a rate of interest of 7.2%, and a loan tenure of 20 years, it shows the monthly EMI you need to pay as Rs. 11,810 for the principal amount of Rs. 15,00,000. In addition, you also get the total interest as Rs. 13,34,457, and the total amount you need to pay over this 20-year period is Rs. 28,34,457.
Factors That Affect EMI
Your EMIs are influenced by three main factors:
Loan amount: This refers to the total amount borrowed and is the main determinant of your EMI. As the loan amount rises, so too does the EMI.
Interest rate: Another important aspect influencing the EMIs is the interest rate on your loan. The interest rate has a direct correlation with EMIs. Interest is determined by banks and other financial institutions using a number of variables, including your income, ability to repay, credit history, current market conditions, etc.
Tenure of the loan: The third element influencing your EMI is tenure. Lower EMIs are typically associated with longer tenures, and vice versa. Nevertheless, a longer loan term also results in a greater total interest expense after the loan term.
Tips for Managing Your EMI Effectively
Here are a few easy strategies for efficiently managing your house loan:
- Make Lump Payments
Your loan term may be shortened if you make lump payments, particularly early on when the principal is high. For partial prepayments, employ funds such as bonuses or maturity returns. After a year, the majority of lenders permit this.
- Look for the Best Interest Rate
Seek out loans with the lowest interest rates in order to save money. It will be easier to manage your monthly payments if you look into different banks to ensure you receive the best deal.
- Make a Larger EMI Payment
Your loan duration and total interest might be shortened by making larger EMI payments. To arrange your EMIs according to your budget, speak with your bank or financial advisor.
- Set Payment Priorities and Schedules
To keep your relationship with your bank positive, make sure you pay your EMIs on time. To make sure you never forget a payment, set reminders or use an app.
- Make an Additional EMI Payment Every Year
One more EMI paid annually might assist in lowering the principal and saving on interest. If in doubt, get guidance from a finance manager.
- Make use of an EMI calculator.
You may evaluate several loan alternatives and calculate your payments with the aid of an EMI calculator. It makes computations easier and assists you in locating the best loan for your requirements.
- Don’t miss an EMI
Missing an EMI might result in penalties and a worse credit score. To guarantee on-time payments and maintain enough money in your account, set up auto-debit.
- Keep Your Credit Score High
A better loan offer with reduced rates can be obtained with a high credit score. Monitor your credit score, pay off any past-due balances, and fix any errors in your credit report.
Conclusion
Managing a home loan plan can appear difficult after you’ve selected a trustworthy and efficient one. However, you can successfully manage your house loan EMIs with proper planning and budgeting. Start by figuring out your monthly obligations utilising a house loan calculator, which will help you comprehend the interest rates and EMIs depending on your present income.
Unexpected gains can also be used to lower the interest burden by making prepayments. Make sure the bank you choose has the lowest interest rate as well. Lastly, to prevent missing payments and tarnishing your reputation with the bank, schedule your monthly EMIs. payments and tarnishing your reputation with the bank, schedule your monthly EMIs.
FAQs
Normally, the EMI remains constant for the duration of the tenure. Nonetheless, there are some circumstances in which the EMI might alter, such as with interest rates that fluctuate in response to market conditions are known as floating interest rates. The EMIs decrease in tandem with the interest rates.
After a certain number of EMIs, think about making partial prepayments to reduce your home loan EMI. Applying more money, such as bonuses, to the principal of your loan will result in a decrease in the interest and remaining balance. This shortens the loan term and lowers your EMI.
Penalties are assessed: People who fail to make their EMI payments are subject to penalties from a number of financial organisations. This could take the shape of increased EMI interest rates or late fines. This sum represents roughly 1% to 2% of the overdue EMI.
Your age, monthly or yearly income, credit score (CIBIL), debts, credit history, and other factors all play a significant role in determining your eligibility for a home loan.