How does the Home Loan EMI calculator work?
When a person applies for a home loan, a critical factor that a lender considers is the applicant’s repayment capacity. A loan is approved only when the bank believes that a borrower can pay it off. This repayment is made in the form of equated monthly instalments or EMIs.
If you are considering a home loan and want to know how EMIs works, then scroll down and read further.
While other factors such as employment history, credit history, etc. have an impact on a borrower’s application, it is the repayment capacity that plays a more significant role. It is because the repayment ability is determined by an applicant’s income; income which will help him or her to repay the loan. Based on an applicant’s repayment capacity, a bank decides the home loan tenure, interest rate, and the principal amount. Once a loan is disbursed, the borrower will have to repay the debt in EMIs.
If you want to find the amount of EMI you will have to pay based on your repayment capacity, then you can easily get that assessment done online. Many banks offer EMI calculators on their website in order to help applicants. With the help of necessary loan details submitted by you, these calculators will find out the EMI amount you will have to pay.
Home Loan EMI calculator
A person doesn’t need a technical or financial background to use a home loan EMI calculator. People who wish to borrow a home loan can easily use it.
Once you submit the necessary details about the loan you want, the tool will calculate the EMI amount payable. You will have to submit details such as the amount of loan, the loan tenure, and the interest rate. If you aren’t satisfied with the EMI amount, you can even modify the tenure or the principal in order to get the desired result.
Home loan EMI formula-
You can even find out the EMI amount without the help of an online tool by using this formula-
EMI = [P x R x (1+R)^N] / [(1+R)^N-1]
- P = Principal Amount
- R = Rate of Interest
- N = Loan Tenure
This manual form of calculation can be difficult and can also lead to miscalculations. Hence, it is recommended that you use an online tool.
Now that you know how a home loan EMI calculator works check out some of its advantages.
Home Loan EMI calculator Benefits
- Suggests You the Loan Tenure
When you are considering a home loan, you will have an estimate of the loan amount in your mind. This loan amount must be paid in a tenure. A home loan EMI calculator can help you determine the repayment tenure. You can find the result you want by modifying principal, rate of interest, and the tenure in the formula as these are variable factors. It is recommended that you repay the loan in a shorter tenure as it can reduce financial liability.
- Ease of Calculation
Even a person with no knowledge of home loans can use this calculator. You only need details such as loan tenure, rate of interest, and the amount of loan.
- Lender Comparisons
You can use home loan calculators from different lenders in order to compare offers. By doing this, you can pick a bank that is offering the most affordable repayment plan.
A home loan EMI calculator will give you foresight into how you need to plan your finances if you borrow a loan.