Given the sky-high prices of real estate in India, even if one has significant savings, it may prove insufficient when buying a house or drain your monetary resources in the process. This is why, prospective home buyers opt for housing credit to ease their property-buying worries. However, before doing so, it is necessary to evaluate whether you can take up a home loan and pay off the debt on time. This is primarily done by estimating the exact EMI to be paid each month and an online home loan calculator helps in carrying out the lengthy calculations easily.

But prior to using a loan calculator, one should be aware of certain home loan basics first.

What Is Home Loan EMI?

When borrowers avail home loans from any bank or financial institution, they are required to repay the money within a stipulated time frame. This task is done through small sums of money payable to the lender per pre-determined terms, known as EMIs or Easy Monthly Instalments. 

House loan EMIs mainly rely on three critical factors:

  • Home loan principal amount – This is the money you borrow from the lender.
  • The applicable rate of interest – This is a fixed sum that lenders will charge for lending the money.
  • Loan tenor – The period within which you need to repay the principal along with interest.

What Constituents Your Home Loan and the EMIs?

Now we take a closer look at these three elements to understand how they may impact your house loan and the EMIs:

1. Home Loan Principal

Home loan principal is the portion of your property’s value that lenders are willing to finance. This amount usually constitutes 80% to 90% of the market price. For instance, if you seek to buy a house worth Rs. 1 crore, you can avail of housing loans up to Rs. 80 lakh or Rs. 90 lakh. You will have to pay the remaining amount as down payment for the house. 

Borrowing bigger sums will increase your EMI; whereas a lower principal will restrict it. Hence, one must be careful when choosing the required loan amount so that it doesn’t strain their budget.          

2. Home Loan Interest Rate

Lenders impose a certain home loan interest rate offered to borrowers. This rate determines the amount you would need to pay on the principal. In the case of house loans, lenders usually compound the interest to compute your credit interest liability.

3. Length of Repayment Tenor

Tenor refers to the duration for repaying a loan along with the accrued interest. Since house loans involve large sums of money – from several lakhs to a few crores – they require a longer repayment period. Depending on your lender, the maximum tenor may vary between 20 to 30 years. 

A longer tenor gives cost-effective EMIs based on one’s income level but the interest build-up may make your loan expensive. Therefore, if you can support larger monthly instalments, the interest outgo could be limited ensuring cost-effective credit. When using a loan calculator, if the projected EMIs appear too high, you may increase the tenor to get lower EMIs. 

How to Calculate Home Loan EMI

Home loan EMI calculations are based on a particular mathematical formula:

EMI = [P x R x (1 + R)^N] / [(1 + R)^N – 1]

Here,

P is the home loan principal

R is the rate of interest 

N is the number of payable EMIs in months 

(For example, if your loan tenor is 10 years, then the value of N will be 12 x 10 = 120)

Suppose you availed of a house loan of Rs. 10 lakh for 10 years at 7.2%, the monthly repayment will be:

P = Rs. 10,00,000

R = 7.2% = 7.2/12/100 = 0.006

N =  10 years or 120 months

So, the EMI = [10,00,000 x 0.006 x (1 + 0.006)^120] / [(1 + 0.006)^120 – 1]

= Rs. 11,714

Thus, you will be paying an EMI of Rs. 11,714 every month for 10 years.

Calculating your EMI manually can be complex, time-consuming and liable to errors, which is why, most borrowers tend to take advantage of online home loan calculator. They are simple and easy to use. All you need to do is enter the required values in their respective fields or use a slider to set the values, and the results will be displayed in an instant.   

What Is Home Loan Amortization Schedule?

Bajaj Housing loan calculator also showcase your amortization schedule. It is a tabulated division of monthly EMIs. Apart from indicating the EMI amount and month, a home loan amortization schedule provides a breakdown of the principal and interest components. While the EMI amount remains constant all through, the proportion of both variables tends to change. For instance, the interest portion is always high during the initial repayment years. Gradually, as the loan progresses, the principal component comprises a larger part of EMI pay-outs while the interest portion decreases. 

Thus, you can check the number of EMIs already paid and the ones still left on your housing credit, detailing the total interest and principal liabilities. 

Merits of Using a Home Loan EMI Calculator

Home loan calculators are preferred by borrowers due to a number of reasons such as:

  • Ease of use – An EMI calculator aids swifter number crunching and is user-friendly.
  • Error-free results – Unlike manual calculations, a house loan calculator will always yield accurate results. This is a critical point because any mistake in big-value housing loans can jeopardise your repayments. 
  • Better loan planning – Using a calculator to estimate your EMIs enhances credit planning. One can even alter the variables to arrive at comfortable figures. For example, you may reduce the principal sum or adjust the tenor as per convenience. 
  • Loan comparison – Borrowers can access online home loan calculators multiple times, free of charge. They can be used to compare different loan options for suitable loan selection.

Summing Up

Home loan calculators are handy tools that provide a realistic picture of your loan. The ability to estimate the payable EMIs and the principal amount helps immensely in shortlisting properties within one’s budget. Prospective borrowers can even access a home loan eligibility calculator to assess the amount of money they may be eligible to borrow. 

Having the right loan eligibility is a pre-requisite to receiving faster approvals of desired principal amounts for which your CIBIL score may be a crucial determinant. In most cases, a credit score of 750 or higher is an acceptable CIBIL score range – one that assures you of the best home loan deals. It can result in low credit costs, with competitive home loan interest rates and terms, repayments of which won’t pinch your pocket.