Owning a house is everybody’s dream. Buying a house is invariably a ‘once-in-a-lifetime’ deal. Nowadays, thanks to home loans, lack of funds are no longer considered a constraint in buying and recreating your own space. A home loan from a bank or an NBFC can become the ideal financial partner to fund your dream house.
But being a big-ticket purchase, lump-sum repayment of a home loan is not possible. Thus, the home loan is repaid back in equated monthly instalments, called the home loan EMIs. The EMI amount is calculated using the Best Home Loan EMI Calculator. It requires inputs of the principal amount to be availed by the borrower, the rate of interest charged by the lender, and the duration in which the loan will be repaid. The instalment amount thus reached is paid back to the lending bank every month over the decided loan tenure.
What is Home Loan EMI?
EMI is the most critical aspect to be considered while applying for a home loan. As mentioned earlier, it is dependent on three elements – principal amount, loan tenure, and rate of interest. While the principal amount and rate of interest impact the EMI value directly, the loan term and EMI value are inversely proportional.
For example – as the amount of loan to be availed increases, the corresponding EMI increases. Likewise, an increase in the rate of interest affects the EMI positively. On the other hand, when a person opts for a longer loan term for loan repayment, his EMI value will reduce. But unfortunately, a longer loan term makes home loans expensive.
How is EMI calculated?
Simply by submitting the numerical values of the three parameters in the home loan EMI calculator, one can reach the EMI value.
EMI is calculated using the mathematical formula [P x R x (1+R)^N] / [(1+R)^N-1]
P = Principal loan amount
R = Rate of interest
N = Loan tenure in months
Why is EMI important?
The EMI amount ascertained using the home loan EMI calculator is to be paid for the entire loan term. Thus, it should be just the right amount – neither too high nor too low. When tweaked carefully on all three parameters one by one, the best home loan EMI calculator helps you reach the perfect amount of EMI based on your requirements. Apart from convenience, a home loan EMI calculator bestows a host of benefits.
Ways A Home Loan EMI Calculator Helps You Plan Ahead
A home loan EMI calculator is a powerful tool. In addition to helping you reach the perfect EMI, it also helps you plan ahead and thus remain financially stable in both your productive years and beyond.
The numerous ways in which a Home Loan EMI Calculator helps you plan ahead are:
Find the Right Lender
The rate of interest at which the loan is offered is used as an input in the home loan EMI calculator. As EMI and rate of interest are directly related, even a marginal 0.5% difference in home loan rate should be preferred. This will reduce the EMI value and bring down the overall interest cost, making the home loan cheaper. With the best home loan EMI calculator, one can see the slightest difference in the EMI value with a minor reduction in the rate of interest. This overall effort helps you choose the best home loan lending body.
Decide Upon the Optimum Principal Value and Loan Term
While the rate of interest is a market-driven value, the principal amount and loan tenure is individual-specific. Keeping in mind the current financial standing and repayment capacity, the borrower must choose the principal amount and loan tenure of a home loan. Opting for a higher loan value or longer loan tenure, which defies your current loan repayment capacity, can lead you to a debt trap. Using a home loan EMI calculator for this purpose allows you to make close alterations to reach the perfect end result.
Reach the Right EMI
Reaching the right EMI is extremely important, and the best home loan EMI calculator helps you do just that! It is difficult to sustain high EMI instalments over a prolonged period of time. This can eventually lead to financial distress. On the other hand, an EMI value that is too low will be a result of an unduly long loan term, which makes the home loan expensive. Thus the right EMI helps you save money.
Build Credit Score
Once you reach the desirable EMI, chances of default and delayed payments are reduced drastically. This timely repayment of the loan, month after month, is vital for boosting your credit score. A good credit score is crucial for all subsequent loans one might need to avail in life.
Use Windfall Gains Appropriately
Each home loan EMI can be split into two components – principal and interest. The breakdown is reflected in the Loan Amortisation Schedule. It is essential to understand this breakdown, especially if one plans to prepay a part of the loan using unexpected windfall gains. One can view the loan amortisation schedule when using a home loan EMI calculator. This helps you plan and make crucial financial decisions based on facts. Once a part of the loan is prepaid, a new EMI of the unpaid balance amount can again be calculated using the home loan EMI calculator.
Savings and expenses go hand-in-hand. As a home loan is a long term loan, it is equally important that one makes adequate investments during this period too. By using a home loan EMI calculator, one gets to know the fixed outflows per month. This allows the borrower to prudently manoeuvre the balance income and set aside a tiny portion into regular saving plans.
Reaching the ideal EMI amount is the most critical aspect of availing of a home loan. As manual calculations of monthly EMI payments can be complicated, time-consuming and prone to errors, the best home loan EMI calculator saves all troubles. The home loan EMI calculator guarantees accurate results in a matter of seconds. This further helps one take prudent decisions that have a long-term bearing on the borrower’s financial health.