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How is EMI for a home loan calculated?

A home loan is the best way to meet the fund requirement to purchase a home. A home is an asset and the best investment anyone can aim for. It is a reflection of yourself and everyone has the dream of owning a home. The budget of a home is always high and it becomes difficult to slash out entire savings to pay for the cost of the property. This is when a home loan is taken to fund the huge investment and financial responsibility. Whenever a borrower opts for a home loan, the first thing that is considered is the home loan EMI.

The EMI scheme of repayment has eased the loan burden. The selection of EMI plays a huge role because every month a certain amount of money has to be paid on a fixed due date. If not chosen right, it becomes a monthly burden where your income falls short of all other expenses and fixed obligations. Avoid falling into a debt trap or compromising your expenses and wishes by choosing the right EMI amount. Take the help of this guide to understand how to calculate home loan EMI and benefits of calculating the EMI and how to do it.

Define EMI

An EMI is an equated monthly installment that is the scheme of repayment on a home loan. The EMI is paid by the borrower to the loan provider every month on a fixed due date. To decrease the burden of one time payment, the entire principal loan amount and rate of interest are divided by the number of months in tenure to get a small portion of the installment amount every month.

An EMI has helped many people come forward to take up a home loan and purchase a home. It is a very effective way to get an easy installment loan that can be paid at ease. The borrower is flexible in choosing the principal loan amount and also the tenure. The best way to get a low interest rate is by maintaining the right eligibility criteria.

Components of EMI

An EMI for a home loan will have three components. They are tenure, principal amount and rate of interest. These three factors are computed to get an EMI amount for the month. One needs to calculate the details of these three factors to make sure they get the right EMI amount. Learn how to calculate home loan EMI and choose EMI based on the capability and income to pay.

  • Principal amount

This is the exact loan amount that is paid by a loan provider to a home owner for purchasing a home. This is the main factor, as EMI will directly depend upon the amount that one borrows. If you are looking for a low EMI, then always go for a low principal loan amount. Choosing a high amount of loan will not give you lower EMI.

  • Tenure

The tenure of long-term and short-term loans plays a huge role in deciding your EMI. When you choose a long-term home loan, the EMI will be low. However, when a short-term loan is chosen, the EMI will be high. There is no need to choose a short-term loan when you are not capable of paying a high amount.

  • Rate of interest

This is a component that is paid extra to the loan provider for the borrowing process. This interest rate should be low. The lower the interest rate, the better the EMI amount for you. Try to keep this extra amount low to make your loan affordable.

Formulation of EMI in home loan

An EMI at home is calculated with the help of a fixed formula. It is depicted as:

EMI = PRINCIPAL AMOUNT+ RATE OF INTEREST/NUMBER OF MONTHS (LOAN TENURE)

This formula needs to be computed on the EMI calculator to get the EMI. With the right input, you will get the EMI for the right type of loan amount. This will help you know your EMI. After calculating your EMI, if you find that it is too high every month, you need to make the specific changes:

  • Choose a long-term loan. Increase the tenure of the loan so that the EMI for the month is decreased. This will help you get a low EMI every month and there will not be any burden. Choose a long-term and then calculate your EMI.
  • Decrease the loan sanction amount. No matter how much the loan provider approves, go for a low amount of loan. This will help you have the best experience. When you decrease the loan amount, the EMI will be automatically low.
  • The rate of interest should be chosen carefully. If you feel your rate of interest is high and that is what is making your EMI high, you need to choose the right rate of interest. Keep looking for options.
Finishing up

The query about how to calculate home loan EMI has been discussed above. This makes it easy for you to borrow in a safe and sound manner. Make sure you choose to take up a long-term commitment like a home loan only when you have sufficient income and capability to repay it.

 

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