Home Loan EMI Calculation
Owning a home has lots of sentiments attached to it. It is one of the most valuable assets one can possess in his lifetime. But, ever-increasing real estate prices make it a costly dream to pursue. This leaves us most of us with no choice but to take a home loan from a bank or Housing Finance Companies. Home loan, of course, comes with an interest that we need to pay back along with the principal amount. Before you apply home loan you must be aware that you are going to get involved in a long-term financial engagement because home loans are a big sum of money that can range between lakhs and crores. It is critical for you to understand all the factors of home loan eligibility so that you are well-prepared to furnish the required documents and information to the bank or Housing Finance Company. One such factor is your repayment capacity. It is required that you prejudge your repayment capacity before applying for home loan. This will give you an idea of how much you need to shell out on a monthly basis to repay your loan.
Equated Monthly Instalment or EMI as it is popularly referred to, is a calculation of your monthly expenditure towards repayment of the acquired loan. Here is how you can calculate your EMI:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where
- P stands for the loan amount or principal
- R stands for the interest rate per month. If the loan is taken at the rate of 10 % per year, then this rate should be converted to per month by using this formula: 10/ (12 x 100)
- N stands for the number of monthly instalments
For example, Ritu wants to purchase a house worth Rs. 95 lakhs in 2016. She decides to make a down payment of Rs. 30 lakhs and takes a home loan for the rest of the amount i.e. 65 lakhs, at an interest rate of 9.40% per annum for 15 years. In order to know the feasibility of this purchase, she can use the above formula. This will give her an idea of the amount she has to shell out every month to pay her EMI and she will also be aware that she has to have a repayment capacity of Rs. 67,483 every month to buy the house.
There is another way of calculating home loan EMI using Microsoft Excel. EMI calculation is Excel is quite easy and simple. Just select a cell and type in the following formula:
- RATE stands for rate of interest applicable on the acquired loan
- NPER stands for total number of monthly instalments or loan tenure
- PV stands for present value, loan amount, principal amount
- FV stands for future value or cash balance once last payment has been made. This can be omitted and the value will be counted as zero (0).
- The TYPE will be 0 or 1 – this indicates when the payment is due. If payment is due at the end of the period, the type will be equal to zero. If the payment is due at the commencement of the month, then the type will be set as 1.
The rate of interest has to be calculated on a monthly basis and not on an annual basis. Thus, the annual interest on loan should be converted to a monthly rate of interest using the following method: Annual Interest Percentage divided by 12. For example, if the annual interest rate is 9.40%, then the monthly interest rate = 9.40%/12, i.e., 0.094.
Not just this, the easiest way to know your home loan EMI is to use the online calculator. Go to any home loan online website, you will get a loan calculator where you just need to feed in your loan amount, the rate of interest, and loan tenure. And, you will get the calculated EMI right on your screen.
So, before you decide to apply home loan and get engaged in this long term affair, it is recommended for you to get an approximate estimate of your home loan repayment capacity, in order to make an informed decision.