Home loan EMI calculator
Banks and other lending institutions have made the availability of loans easier and hassle-free. They render lending services for small to big needs and to an individual to the corporates. One such need is owning a home, which now, has progressed from being a necessity of a human being to becoming a thing of choice. There are numerous options available when it comes to buying a house and this does not go without saying that all these require a hefty sum. Availing a loan is the best choice in this case, but that must be taken with dire caution. You should ensure having a proper knowledge of everything before availing a Home Loan, in which the most important part is the calculation of EMI.
Equated Monthly Instalments or EMI calculation must be done in order to avoid financial bankruptcy in any scenario. There are a plethora of financial service portals that allow you to get an estimation of the Home loan EMI. The calculation is based upon the Home loan amount, interest rate and the tenure you choose for the reimbursement of the loan. Apart from this, Home loans, just like any other loan, can also be calculated manually. One just needs to employ a simple formula to get the EMI amount. Thereby, we should proceed further in knowing the ways to calculate home loan EMI before actually availing the loan itself.
How to calculate
Factors affecting home loans are no different than the factors, which affect all other loans. The variation depends on choosing the type of interest rate. For example, the EMI amount will be different for floating interest rate and different for fixed interest rate. This once decided, the EMI can be calculated easily. We have the option to calculate home loan EMI via three ways- using web portals, using Microsoft Excel spreadsheet and by using a calculator or manual calculation.
- Online EMI calculators: Almost all the major banks and finance websites offer online EMI calculators. They provide a readymade tool that has blank fields where you can input the loan amount, interest rate and loan tenure. After filling the necessary details, the calculator will instantly display the results. You can also adjust the figures of the loan amount, rate of interest and tenure and the result will change accordingly. This is the easiest and fastest way to get an idea of the home loan EMI, which you would be paying on a particular principal amount.
- Microsoft Excel spreadsheet: After Online EMI calculators, Excel spreadsheet is the easiest way to calculate the EMI amount. The formula used in Excel is PMT and you need three variables to proceed, namely, rate (of interest), nper (number of periods) and pv (loan amount). The result or the EMI amount will be displayed in red or negative (borrower’s outflow).
- Using a calculator or manual calculation: An Excel sheet will not be available with you every time. In such a case, you can use a calculator or can do the calculations manually to get the EMI amount. The same three variables are needed in this case too, i.e; loan amount, interest rate and the number of periods.
Formulas used for EMI calculation
While using online home loan calculators, you don’t need to worry about the formulas as the algorithms are pre-embedded and the result is displayed instantly after filling the details. On the other hand, Excel spreadsheet uses a formula called PMT. This in no way means that you need to use the formula. Just like the online calculators, only filling the details will do the job.
Excel formula: PMT(rate, nper, pv)
- Where, ‘rate’ is the rate of interest
- ‘Nper’ is the number of periods, and
- ‘Pv’ is the loan amount.
However, you need to have complete knowledge of the mathematical formula if you are using a calculator or doing the calculations manually.
Mathematical formula: EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where
- P is the principal amount
- R stands for rate of interest, and
- N denotes the number of periods.
Benefits of home loan EMI calculation
Calculation of home loan EMI has a number of benefits. Having the idea of what you need to pay over the coming years in order to reimburse the loan is not only necessary but of crucial importance. Here are the few benefits of home loan EMI calculation:
- Planning finance: It is better to know the EMI amount before availing the particular home loan. This helps you to plan your finances accordingly and will also save you from sudden shocks and even bankruptcy in the worst cases.
- A wide array of figures: The best part of home loan EMI calculation is that you can adjust the inputs and get the results accordingly. You can have EMI amounts of numerous interest rates and also, you can adjust the tenures.
- Complete information: Some of the online home loan EMI calculators display the entire chart of the closing and opening balance for each year. The chart also shows the principal amount and the interest charged separately, so that you have an inch-perfect knowledge about the reimbursement of the loan.
Fixed, Floating and Hybrid interest rates for home loan EMI
All type of loans (including home loans) are available generally with three types of interest. These affect the EMI amount and are chosen according to the borrower’s need.
- Fixed interest rate: As the name suggests, loans availed with this interest rate have fixed and predetermined EMIs. The interest rate remains the same throughout the tenure and is for those who have a rigid budget.
- Floating interest rate: Unlike the fixed interest rate, this interest rate is subjected to change, influenced by the external factors. This subsequently changes the EMI amount. Also, the floating interest rate is generally less than the fixed interest rate.
- Hybrid interest rate: This is a combination of the fixed and floating interest rate. In this, the banks charge EMIs depending on the fixed rate for the first part of the tenure and the rest on the floating interest rate.