Every home loan is repaid in the form of EMIs. EMI is the short for equated monthly instalments. When a lender lends money to a home loan borrower, it charges interest to make up for the risk they are taking by lending money to the borrower. Therefore, home loan EMIs constitute a principal component which goes towards the repayment of the principal amount and an interest component that goes towards the repayment of the interest component of the home loan. The home loan repayment process is such that during the initial years of loan repayment, a considerable percentage of the EMI goes towards interest repayment and only a small percentage goes towards covering the principal amount. As the loan tenor advances, the principal component goes up and the interest component comes down.
Anyone planning to avail of a home loan in India must also know that the EMI that a borrower pays depends primarily on three different factors: loan amount, the rate of interest offered and the tenor of the loan. Lenders sanction up to 80% of a property's value as a loan. The remaining amount, known as down payment, must be arranged by the borrower. When borrowers pay a higher down payment and choose to go for a lower home loan amount, their EMIs go down. On the other hand, a high loan amount inevitably leads to high loan EMIs and sometimes, even makes the process of loan repayment difficult.
The rate of interest that a home loan borrowers gets on the loan also affect one's home loan EMIs. A high home loan interest rate can make one's home loan EMIs unaffordable.
On the other hand, a low home loan interest rate can considerably ease the burden of loan repayment. The home loan interest rate that a borrower gets offered depends on several factors, such as the borrower's age, credit score, income and job stability, location and resale value of the property being purchased with the loan money, etc. Those planning to avail of a home loan must develop a clear understanding of the various factors that affect home loan interest rates as this will help them avail of a low home loan interest rate deal.
Lastly, home loan EMIs also vary based on the tenor chosen. A long tenor increases the total interest pay out on a loan but majorly reduces the EMI burden. On the other hand, a short tenor decreases the interest pay out but might make one's EMIs go considerably up. Ideally, borrowers should try to keep their loan tenor as short as possible while keeping their loan EMIs as affordable as possible.
Developing an understanding of the various factors that affect EMIs helps borrowers take the right decision regarding what loan amount and tenor would be ideal for them and what is the rate of interest they should negotiate for on their home loan.
Let us now understand how a home loan EMI calculator works and why borrowers must this handy tool.
Advantages of a Home Loan EMI Calculator
A home loan EMI calculator is a handy tool that borrowers can use to calculate their EMIs with respect to the home loan amount they wish to borrow. The home loan EMI calculator is quite easy to use. All a user has to do is input information in three fields using a toggle bar and the calculator instantly gives a borrower their EMIs. To be able to use the calculator, borrowers must know clearly the loan amount they wish to borrow, the rate of interest they are being offered and the loan tenor they are planning to go for. Home loan EMI calculators are quite easily available these days. Borrowers can find these calculators on their lender's website or on the internet if they search for them. Using the calculator requires only a basic understanding of how laptops and smartphones work and an internet connection.
Many home loan borrowers think of a home loan EMI calculator as an unnecessary hassle and do not use this tool even when they should. Let us now look at the benefits of a home loan EMI calculator and why one should use thus tool.
1. It Helps Borrowers Understand How Much They Can Afford to Borrow
Using a home loan calculator, borrowers can try different combinations of loan value, loan tenor and rate of interest to arrive at a loan amount and EMI value that they can easily afford to repay. It is crucial that borrowers borrow only what they can easily afford to repay as it helps them repay their loan in a stress-free manner and steer clear of loan defaults.
2. It Helps with Financial Planning
Borrowers must use a home loan EMI calculator as it helps with financial planning. A home loan EMI calculator helps borrowers understand their EMI obligation in advance. Once borrowers know how much they have to pay in EMIs, they can move things around in their budget to make sure they have ample money left at the end of each month to cover their EMIs.
3. It Helps Borrowers Plan Repayments
Borrowers can choose to part prepay their loan at any given time. When borrowers part prepay their loan, they either reduce their EMIs or the loan tenor. Either way, through prepayments, they ease the burden of loan repayment. However, to be able to gain the most from prepayments, the borrowers must time them well. A home loan EMI calculator helps borrowers figure out the best time for making prepayments to save the most.
Final Words
A home loan is a long-term commitment. These loans go on for years and the tenor for these loans can also easily stretch up to 20 to 30 years. Borrowers must, therefore, borrow these loans after proper planning. A home loan EMI calculator helps with loan planning and management. It tells the borrower how much they should borrow and how they can easily repay it. All home loan borrowers must mandatorily make a home loan EMI calculator an essential part of their home loan journey. Home loan EMI calculators are quite easily available these days. So, before applying for a home loan, search for a home loan EMI calculator online and use it to figure out the loan amount and EMI as well as the loan tenor that will work best for you.
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