Home loans are long-term secured loans. Availing such a loan is a significant financial responsibility. More than 83% of home loan borrowers do so only once in their lifetime for a single residential property purchase.
Determining the EMIs before you apply is one of the ways to avoid defaulting on the repayment. For that, a monthly installment or housing loan EMI calculator is a tool that can help you out.
What Is a Monthly Installment Calculator?
A monthly installment calculator is an online tool that does precisely what its name says. Using this tool helps you assess how much EMI you can afford. You only have to enter your loan amount (principal), rate of interest and tenure to clause your EMIs.
How Does a Monthly Installment Calculator Work?
A monthly instalment calculator works on the following formula – E = P x r x (1+r)^n/((1+r)^n – 1).
In the above equation –
- “E” – equated monthly installment (EMI).
- “P” – principal or loan amount.
- “r” – home loan interest rates.
- “n” – loan repayment tenure.
Why Should You Use a Monthly Installment Calculator?
A monthly installment calculator eliminates the need for manual calculation, which may not deliver accurate results. Plus, it can also help you determine the most suitable loan tenure.
Determining the tenure with an EMI calculator is essential since these home loans are long-term with repayment periods stretching up to 20 years. Your EMIs and cost of the loan will depend on the tenure you opt for. Longer tenures make your EMIs affordable while shorter ones lower the cost of loan.
Consider two home loans of Rs. 85 Lakh each at a 12% rate of interest. Both loans have different tenures –
For Example : 20 years,
In this case, the EMIs will amount to Rs. 93,000 (approx.) while the cost of a loan becomes Rs. 2.24 Crore (approx.).
For Example: 15 years,
In this situation, the EMIs will increase to Rs. 1 Lakh (approx.) while the cost of the loan decreases to Rs. 1.83 Crore (approx.).
In addition to monthly installments, a home loan EMI calculator also shows the amortization schedule of your loan.
What Is an Amortization Schedule?
Your loan EMIs will remain the same throughout the tenure. However, the principal and interest component will change as you repay. The majority portion of your EMIs consists of interest during the initial years of repayment. As you repay, the interest lowers and the principal increases.
Amortisation is the process through which financial institutions calculate your home loan EMIs. And, an amortization schedule shows the breakup of your EMIs per month and year.
Benefits of an Amortization Schedule:
The amortization schedule helps you determine the most beneficial point of time to foreclose the loan. You may want to repay the outstanding amount of your loan before the tenure ends and save on interest. In such cases, determining the right time to foreclose is essential.
Foreclosing your loan early can help you save the most on interest. However, you have to pay a lump sum amount since a majority part of the principal is outstanding. On the other hand, foreclosing close to the end of your loan tenure is not beneficial since you have paid a significant portion of your loan interest.
Hence, the ideal time to foreclose is in the middle of the loan tenure when the interest and principal portion in your EMIs are equal.
Make sure to use a eligibility calculator before you apply for home loan. This calculator tells you the loan amount you are eligible for based on several factors.