Home Loan EMI Calculator

What is a Home Loan?

A home loan is a type of financial loan used to finance the purchase of a house or residential property. Buying a house requires a substantial sum of money, and getting a home loan makes it easy. You borrow money from the financial institutions to pay for the house. As an obligation, you put the home on a mortgage with the financial institution. However, there are various institutions which provide the loan without any collateral.

The financial institutions analyse your eligibility before sanctioning the loan by determining the following factors:

1. A stable source of income
2. A good credit score
3. A stable source of income: Salaried / Self-employed / Business.
4. Good credit score.
5. Age and how much loan you need.

The aim behind this practice by institutions is to ensure that you will repay the amount to them and utilise the loan proceeds for defined purposes only, as home loans are generally sanctioned in very large amounts where tenure can be as long as 30 years.

Buying a house is a crucial financial decision. For most people, their house is the most valuable asset they own. Getting a home loan to buy a home is an efficient way to build your real estate portfolio with a relatively small investment. The home loan tenure period is generally 10-30 years, but one can pre-close it if they wish to.The borrower is supposed to repay the loan in small instalments every month over the loan tenure period. The longer the loan tenure period, the smaller the equated monthly instalment will be, and the more interest will be paid to the institutions, and vice versa.

Generally, the interest rate on home loans offered by banks or any financial institution in India ranges from approximately 7% to 11%.

Pro Tip:

Use the “5, 20, 40” rule to buy a house with ease:

• The value of the house shouldn’t be more than five times your annual income.
• The loan tenure period should be 20 years or less.
• Your monthly EMI amount should not exceed 40% of the monthly income.

What is a Home Loan Calculator?

A home loan calculator is a financial tool that calculates the amount of the EMI for a home loan. You can calculate the EMI amount by just entering the following inputs in the calculator:

• Loan amount
• Interest rate
• Loan tenure

All the three inputs have significance and affect the EMI amount differently.

1. Principal Amount (P): The principal is the amount provided by the financial institution to the individual to facilitate the purchase of the house. The loan amount is generally 80-90% of the value of the purchased House. Until the full repayment of the principal amount with the interest is made, the financial institution has full ownership rights over the property.
2. Interest Rate (R): The interest rate is the cost of borrowing money or the reward for bearing the risk by the lender. Banks often offer competitive interest rates on home loans, with special concessions for female home buyers.
3. Loan Tenure (N): The loan tenure is the period between the loan amount’s disbursement and the closing of the loan or complete repayment of the principal amount along with the interest. The longer the tenure period, the smaller the monthly EMI, or vice versa. There is an inverse relationship between the loan tenure period and the EMI amount.

Why should you use a Home Loan Calculator?

• Simplification: Calculating home loan EMIs with a regular calculator can be complex, especially for those less comfortable with numbers. Online home loan EMI calculators simplify this process.
• EMI Estimate: Home loan EMI calculators provide an estimate of your monthly EMI. They offer a rough estimate of what to expect when borrowing a certain amount.
• Cost Efficiency: Our Home loan calculator is free to use, saving you fees paid to financial advisers. The calculator requires only a few numerical inputs to estimate your dream house’s monthly instalments.
• Time Efficiency: Calculating EMI amount using a traditional calculator is a time-consuming process, especially for those unfamiliar with mathematical terms. Home loan calculators can save a significant amount of your time.
• Comparison: These calculators can help you compare the loans offered by different banks, aiding better decision-making. Since the EMI depends on the loan amount, tenure, and interest rate, it can vary between institutions.

How does a Home Loan EMI Calculator work?

The home loan EMI calculator works on a mathematical formula that considers the following components:

E= (P*R*(1+R)^N)/(( 1+R)^(N-1))

E	E stands for the equated monthly instalment or the regular monthly payment.
P	P stands for the principal amount.
R	R stands for the rate of interest.
N	And N stands for loan tenure.

Let’s try to understand the workings of a home loan EMI calculator with the help of an example:

Suppose Mr. X wants to buy a house worth INR 1 crore for which he goes to the bank and asks for a loan of INR 60 lakh for 20 years. Considering the profile of Mr. X, the bank happily agrees to give him the loan at a fixed interest rate of 7%.

Now, Mr. X wants to know how much he needs to pay monthly as his instalment to repay his loan in 20 years.

He will simply have to add the values above in the given calculator & voila! he has the amount that he needs.