Planning to buy your dream home? You may have probably discovered that purchasing a house is more complex than you anticipated, especially if you need to apply for a home loan.
Crunching the numbers is necessary so that you don’t default later. But for an ordinary citizen with only a vague interest in mathematics, arriving at the right numbers can be an uphill battle.
And you are not alone: millions of Indians apply for a home loan each year.
According to data by the Reserve Bank of India (RBI), outstanding home loans have been rising in number over the years, peaking at a value of INR 11.6 trillion in 2018-19.
Fortunately, you can make use of online calculators to decide the amount and term of your loan. However, before we jump in, let's figure out what a home loan EMI calculator even is.
A home loan EMI calculator is a simple mathematical tool that is free to use for everyone. This straightforward calculator tells you the amount of money you’d be repaying each month for specific loan size and term.
By varying the term of the loan in the calculator, you can find out how much you’d be paying over 20, 25 or 30 years and pick a loan size that’s suitable for you.
A home loan EMI calculator can be used as a handy guide before applying for a home loan. It helps you estimate the loan amount you are eligible for, as well as your EMI or Equated Monthly Instalments.
Generally, a home loan EMI calculator has three parameters – loan amount, interest rate and tenure.
With the interest rate remaining constant, you can change the loan amount and tenure to work out your EMI in various situations and pick the most suitable combination.
Typically, a longer loan tenure (for a maximum of 30 years) helps in reducing the EMI. However, the longer the loan tenure, the more you pay in interest.
Using a home loan EMI calculator is quite straightforward. All you need to do is enter the loan amount, interest rate and the loan tenure in years. And, within seconds, you will see the estimated EMI value on your screen.
Calculating the exact EMI for your home loan can be cumbersome. Usually, the most a layperson can do is consult an accountant to run the numbers.
But what if someone decided to create an online tool that can perform complex calculations in seconds and give you accurate results? This is where an EMI calculator comes in.
Getting such an estimate before applying for a home loan will help you plan your finances better and minimise the risk of defaulting on your payments.
The best part is that most online EMI calculators are free to use. With a home loan EMI calculator, you can even figure out the right sized loan for yourself.
As they say, you shouldn’t buy more than you can chew. This means you should not borrow the entire amount available to you.
Instead, crunch the numbers using a home loan EMI calculator to figure out the maximum EMI amount you can afford to decide the size of your borrowing.
Anybody who is planning to purchase a home can use a home loan EMI calculator to check the size of their EMI.
Generally, it is suggested to calculate your EMI at a higher interest rate to build a buffer for any future interest rate hikes.
Home loan EMI calculators use a specific formula to calculate your EMI, which is:
E = [P x R x (1+R) ^N] / [(1+R) ^N-1]
Here, E is the EMI amount, P is the principal, R is the interest rate, and N is the loan term.
So, if you are applying for a home loan of INR 50 lacs for a 20-year term at an interest rate of 10%, your EMI would be:
E = [50, 00,000 x 10 x (1+10) ^ 20] / [(1+10) ^ 20-1]
Here, E amounts to INR 48,251 per month.
If you are in the process of purchasing your dream home, you can benefit from using a home loan EMI calculator before sending in your loan application.
Thanks to technological advancement and urbanisation, India is set to witness a steep incline in the demand for affordable housing.
The Mckinsey Report (2010) estimates the development of 38 million housing units in 2030. This staggering number emphasises the need for a calculator to deal with higher loan rates and stay on top of your finances.
In addition to using a home loan EMI calculator to determine your EMI, it is also a good idea to use a CIBIL Score calculator to determine your creditworthiness.
Besides, getting a home loan after checking your EMI makes sure you can repay it confidently, which helps in maintaining your credit score: a three-digit number that's essential to be approved for any other credit in the future.