Home loans are big-ticket, long-term loans. Further, these are secured loans — the home that you buy with the loan money serves as collateral and inability to repay loan EMIs on time can lead to this collateral being legally transferred to your lender. Therefore, while deciding the loan amount to be borrowed, borrowers must make sure they are availing of EMIs they will be able to easily repay.
For those who do not know, home loans or housing loans are repaid in the form of EMIs. Each EMI consists of two components, one that goes towards principal repayment and the other that goes towards the repayment of the interest component of the home loan. A home loan EMI calculator helps borrowers figure out the right loan amount for them based on the EMI they can comfortably repay.
What is a Housing Loan EMI Calculator?
A housing loan EMI calculator is an online tool that gives borrowers their EMIs based on three different values: home loan interest rate offered, the loan amount one wishes to borrow and the tenor that one wishes to go for. Any changes in even one of these three values will have a direct effect on a person’s EMIs.
The home loan EMI calculator uses the following formula to calculate a person’s EMIs.
EMI = [P x R x (1+R)^n]/[(1+R)^n-1]
Here,
P refers to the Principal amount that a borrower wishes to borrow.
R refers to the rate of interest being offered to them.
And n refers to the loan tenor in months.
Now that we understand how a home loan EMI calculator works, let us look at why borrowers must use this tool as an integral part of their home loan application process.
Benefits of a Home Loan EMI Calculator and Why Borrowers Should Use It
1. It Helps You Figure Out the Right Loan Amount and Tenor for You
Home loans invariably involve a substantial amount of money, and therefore, one must avail of these loans after proper planning. In simpler words, home loan borrowers must borrow cautiously and only an amount that they know they will be able to easily repay.
When you know the EMI you can comfortably afford based on your income and your monthly fixed obligations, using the calculator, you can try different combinations of loan amount and tenor until you have arrived at an EMI figure that you will be able to easily repay.
It is nearly impossible to perform these calculations manually. Even if you are excellent at Maths, trying different combinations of loan tenor and loan amount would require you to spend a lot of time and energy on the task and it is simply not worth it. So, use a home loan calculator to help you decide the right loan amount and tenor for you.
2. It Helps with Loan Repayment Planning
Home loans are big-ticket loans with home loan EMIs sometimes going into lakhs. Therefore, when someone takes on the responsibility of loan repayment, they must do so after proper planning. They must make sure they will be able to repay their EMIs each month. A home loan EMI calculator helps with repayment planning. The calculator tells a borrower what their monthly EMIs would be and once the borrower knows their monthly obligation, they can cut down on unnecessary expenses and work on their budget to make sure they have enough money left at the end of each month to cover their EMIs.
3. A home loan EMI Calculator Also Helps Borrowers Compare Various Offers and Choose the Right One for Them
Home loan borrowers are advised to shop for interest rates. When one talks to more than just one lender, one gets a better idea of the home loan interest rate they can get. Low home loan interest rates make home loan repayment easy and therefore, every home loan applicant’s key aim should be to avail themselves of a low home loan interest rate deal.
Home loan applicants should talk to representatives of as many different lenders as they can and then use a home loan EMI calculator to understand how the home loan interest rate being offered by different lenders is affecting their EMIs. They should, in the end, go with the lender offering them the most lucrative housing loan deal.
4. It Helps Decides the Ideal Time for Loan Prepayments
Every home loan borrower wants to become debt-free as soon as possible. Thus, when borrowers run into some extra cash from a bond or FD maturity or a bonus, they often use the money to make part-prepayments. However, prepayments work best when opted for during the early years of the loan tenor when the major component of a borrower’s EMIs is still going towards loan repayment. A home loan EMI calculator tells a borrower how a prepayment will affect their EMIs and their total interest outgo and whether opting for one would be the right choice or not.
5. These Calculators Help Borrowers Save Time and Energy and the Results Can be Trusted for Accuracy
All the things mentioned above can also be done manually. However, manual calculations consume a lot of time and energy. Further, manual calculations are also prone to errors. A home loan EMI calculator is quick and accurate and therefore, anyone applying for a home loan must use these calculators to their best advantage.
Final Words
Every home loan applicant must use a home loan EMI calculator. These handy online tools are easily available these days. Simply search the internet and you will get many different options to choose from.
Having a clear idea about your Home Loan planning will allow you to borrow from companies that offer sizeable loans at highly competitive interest rates. Further, the flexible repayment tenor option offered by them eases the burden of loan repayment. So, make an application today and enjoy benefits, such as zero prepayment and foreclosure charges and free online tools to help loan repayment planning easier.
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