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How Does a Home Loan EMI Calculator Work? Research Team | Posted On Friday, December 27,2019, 04:57 PM

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How Does a Home Loan EMI Calculator Work?



EMIs, as you all know, are Equated Monthly Installments. It is the monthly payment you have to make in return for a loan taken from a bank or financial institution.

These days, where everything is digital online EMI calculators are available on various platforms that help you calculate your monthly installments. It is a great financial planning tool available at your convenience. They are simple, accurate and fast. Graphical representations are the highlight of EMI calculators. It helps common people understand the detailed structure of the loan they are opting for.

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How Does a Home Loan EMI Calculator Work?

Important components in an EMI calculator are:

Loan amount: This is nothing but the amount you wish to borrow. This can vary depending on your needs. Your home loan can be for construction of a new house, to acquire a plot of land or to renovate the existing home. Depending on your needs, your loan amount will vary. In an EMI calculator, this is the first option you are supposed to enter. Usually, a pictorial scale showing a lower limit and upper limit will be displayed. You can choose an amount according to your needs.

See Also: Home Loan EMI Calculator

Interest rate: EMIs consist of your principal amount and interest costs on this amount. The interest rate is the rate at which you wish to pay the interest on the loan. You can choose an affordable interest rate. However, this interest rate will be usually fixed by the lending institution although negotiations are possible. Based on the options available in the market, you can choose a rate that will help you calculate realistic EMIs.

Tenure: Loan Tenure is the time period within which you wish to repay the loan. As the tenure period decreases your EMIs will increase and vice versa. This is because if you have to repay an amount within a short period of time the amount to be paid will be higher. People often choose longer tenures for home loans. This will reduce the burden of debt.

You can choose different tenures on an EMI calculator. The difference in the EMIs with the changing number of years will be showcased. This will help you make decisions regarding the loan plan.

Processing fee: This is the fee charged by banks or financial institutions for the purpose of completing the procedure of availing a home loan. This includes documentation, verification, etc. This amount is usually not refundable. Some home loan EMI calculators also have the option of choosing the processing fee rate. This is important because this is probably the first sum of money you will have to pay the bank in order to process your loan and get it sanctioned.

See Also: Why is Your Home Loan EMI Still High?

Prepayment: It is a facility to repay the loan partly or fully before the loan tenure because you have adequate funds. This helps you finish off your liabilities beforehand and invest your money elsewhere. It can also reduce your monthly EMIS or loan tenure. Online EMI calculators more often have the option to choose whether you want a prepayment facility or no. Furthermore, there could be an option to choose whether you want periodic payments or a onetime payment.

Amortization table/schedule: Your monthly EMIs contribute to the principal amount as well as the interest costs. EMIs of the initial period are generally aimed at paying off interest costs more than the principal amount. This will change with the progress of years. So an amortization table will give you detailed information on this. It spreads your loan to a sequence of periodic payments with information regarding what portion of payment contributes to which part of the outstanding loan.

See Also: How to Select The Best Home Loan in India? What Should I Consider?

Hence, EMI calculator is a great tool for strategic financial planning and decision making. The various options available make it flexible and easy to understand.

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