As per recent report RBI has reduced its repo rate by 25 basis points. The current repo rate stands at 6.25%, lowering the total cost of your loan and making your EMIs affordable. You can determine your EMIs with the help of an online EMI calculator for a home loan.
How are EMIs determined?
While you avail advances, you are required to repay the borrowed amount in equated monthly installments termed as EMIs throughout the tenure. EMIs consists of two amounts clubbed together – the principal and interest amount you are liable to pay in total divided across each EMI. At the initial stages of your home loan EMIs, the interest amount is higher compared to the principal amount. Over the tenure, the principal component of the EMIs increases against the interest component.
How to calculate EMI?
Your EMI depends on three factors –
- Home loan interest rates
- Loan amount
- Loan tenure
The mathematical formula to calculate EMI is [P x R x (1+R) ^N]/ [(1+R) ^ (N-1)] = EMI, where P stands for the principal amount, N denotes the loan tenure and R indicates the rate of interest.
For example: Suppose your loan amount is Rs. 25 Lakh availed on a tenure of 40 months at an interest rate of 8% per annum. Using the formula –
- P = Rs. 25 Lakh.
- N = 40 months.
- R = 8% (monthly interest rate = 8/12 = 0.667%)
EMI = [25, 00,000 x 0.667 x (1+0.667) ^40]/ [(1+0.667) ^ (40-1)]
EMI = Rs. 27,97,250 (approximately.)
Alternatively, you can use a home loan calculator to determine your EMIs accurately before availing a loan. Let us understand the calculation with an example –
Using the above example, your loan amount is Rs. 25 Lakh availed with a tenure of 40 months at an interest rate of 8%. Your monthly payments will be Rs. 71,410 and the total amount that you are required to pay back (including the principal and the interest amount) is Rs. 28, 56,403.
Now, if you increase the loan tenure to 200 months, the EMI will be Rs. 22,669 and the total repayment amount (including the principal and the interest amount) will be Rs. 45,33,617.
There are several benefits of calculating EMIs before taking a home loan such as it helps you plan your repayment and prepayment and also helps you decide on the loan tenure and loan amount.
How to make your EMIs affordable?
In case the EMIs become a financial burden, you can increase the loan tenure or decrease the loan amount to reduce your EMIs. You can use the EMI calculator and alter the respective amount to check the EMIs and decide on the ideal tenure and loan amount.
You can also reduce your EMIs with a home loan balance transfer. Balance transfer facilities help you to transfer your outstanding EMIs from your existing lender to a new lender offering advances at a lower interest rate. Against such transfers, you are required to pay a minimal fee.
Several financial companies offer balance transfer facilities against a minimal fee. Some lenders also provide Home Loans at an attractive interest rate against minimum documents with additional facilities such as balance transfer and top-up loans. They also offer –
- Online account access.
- Minimal prepayment fees.
- Minimum foreclosure charges.
- Relaxed home loan eligibility criteria.
- Substantial loan amount of up to Rs. 3.5 Crore.
- Prolonged tenure of up to 20 years.
- Easy EMI options.
Following these guidelines, a borrower can estimate his/her monthly outgo conveniently. Also, keep in mind to settle on a lender that offers advances catering best to your financial requirements.