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Finance

Know How the Home Loan EMI Calculator Functions

Today, if you are planning to apply for a home loan, you can plan your finances well and know the exact EMI payable in advance by using the EMI calculator. Read on to more about this useful tool.

If you are a first-time home loan applicant, you may have several questions about the EMIs (Equated Monthly Instalments). But, you need not worry about all this as you can now easily calculate your EMIs using the online EMI calculator and know the exact EMI payable within minutes. Additionally, by knowing the EMI payable beforehand, you can be well informed when approaching the lender for a home loan.

Before we discuss in detail about EMI calculators, let us first understand what an EMI is.

What is Home Loan EMI?

An EMI is a repayment method wherein you can repay the principal amount and the interest amount in smaller instalments every month till the end of the actual loan tenure. The EMI amount is the cumulative amount, and it includes both the principal amount and the interest component.

When you start repaying the loan, during the initial few years, a large portion of the EMI goes towards the repayment of the interest. As you continue to repay consistently, during the later years, a major part of the EMI goes towards the repayment of the principal amount.

How Does a Home Loan EMI Calculator Work?

The EMI calculator is a simple and free online tool. Today, almost all the lending organisations have this tool on their website to showcase transparency and honesty in their EMI calculations. You need not have any technical knowledge to use the tool. The working of the tool is simple; you must enter a few basic loan-related details, including loan amount, the loan duration, interest rate, process fees, etc. And once you enter the details, the tool will automatically do the calculations and showcase the exact EMI. The tool is a fast and reliable source of information.

The best thing about using the EMI calculator is that you can calculate the EMI multiple times by changing the input. This means you can change the loan amount, or the duration any number of times and see how changing the input will affect your EMI. Thus, you can adjust the input to exactly know the loan amount you must apply so that the EMI is affordable.

Benefits of Using Home Loan EMI Calculator

  • Buying a home is one of the biggest financial decisions you may make in your lifetime. It requires significant investment, and you must plan your finances well. By using the EMI calculator, you can know the maximum loan you can afford to borrow so that repayment doesn’t become a burden.
  • By understanding the exact EMI payable to the lender each month, you can plan your finances well and make the necessary arrangement for the repayment. It also helps you prepare the monthly budget and set aside a fixed amount towards the loan repayment.
  • The EMI calculator provides instant results, and the calculation is accurate. 

The formula for EMI Calculation

 You can calculate the home loan EMI amount with the following formula:

 EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

 In the above formula:

  • P stands for the principal amount or the amount sanctioned by the lender on which the interest will be levied.
  • R stands for the interest rate set by the lender
  • N stands for the loan duration

 Also, in the above formula, P, R, N are variables, which means if you change the value of any of the components, the EMI amount will vary.

But, remember, calculating the home loan EMI manually can be a tedious job; you can avoid the complex calculation and use the EMI calculator instead. Also, there is always a risk of miscalculation or manual error when you calculate the EMI with pen and paper.

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