Availability of a home loan starts from the very process of research itself. Since a home loan is a long term commitment, the first step that an individual must take is to conduct research. They should compare various lenders and choose the one with the most affordable rates and best services. Another integral part that individuals should do is calculate home loan EMIs beforehand.
Efficient ways to calculate home loan EMI
Given below are the ways individuals can calculate their home loan EMIs.
- Using online Interest & EMI calculators
Several financial institutions offer home loan Interest calculator to let borrowers calculate their EMIs at ease. Borrowers can visit the websites of various lending institutions and find an online calculator. Individuals need to enter their desired loan amount, loan tenor and interest rate to calculate their monthly EMIs. Doing this would help the borrowers understand the market situation better and plan their finances accordingly.
- Using manual calculations
Apart from that, individuals can also manually calculate their monthly EMIs using MS excel. To do so, they need to use the following formula:
PMT (RATE, NPER, PV, FV, TYPE)
Where,
- RATE means the rate of interest offered by the lender divided by 12
- NPER means the number of EMIS
- PV means the principal amount
- However, individuals must remember to set both values of TV and TYPE to 0.
Doing these manual calculations can be tricky and lead to mistakes sometimes. In addition, these are time taking and can result in factual errors. Thus, online calculators are recommended to avoid any kind of factual errors and derive results quickly.
Apart from that, individuals must also know the documents required to avail of a home loan. Knowing home loan documents would speed up the entire process. Although a few things remain common in eligibility criteria, individuals must check if their lender needs anything other than the required ones.
What to consider while calculating home loan EMI?
While calculating home loan EMI, individuals must consider the following things.
- Deciding the loan amount
The first step a borrower has to take is determining what loan amount is required. The amount of loan to be taken will decide the EMI amounts. Applicants who meet the eligibility criteria and have a strong financial background will get a sizable loan.
Apart from that, the property value also decides the home loan amount. Generally, lending institutions offer 70%-80% of the property value as a loan to their customers. The rest amount the borrower has to pay as a down payment.
Although the final amount of a home loan is decided after a few rounds of negotiation, it would be better if borrowers approach them with a pre-decided amount.
- Selecting home loan repayment tenor
The repayment tenor, or the period over which the borrower will repay the loan amount, also decides the EMI amounts. There are several factors that the lending institution will consider before setting the repayment tenor, such as the borrower’s age, his/her financial background and EMI to income ratio.
In general, lending institutions expect borrowers to repay the loan amount within 62 years or till their age to retire. Younger applicants generally have higher chances of loan approval and they get more repayment tenor.
However, borrowers must keep in mind that a longer repayment tenor would mean shorter EMIs, but instead it would result in an increase in principal amount. Thus, borrowers should pay a greater amount of EMI to reduce the final principal amount to be repaid.
- Getting the best interest rate
Individuals must borrow a home loan at most affordable interest rates. Several financial institutions offer interest rates as low as 6.7% to salaried employees having strong repayment capacity. Individuals eligible for lower interest rates can save a considerable amount on their EMI outflow.
Apart from that, individuals must also consider what kind of interest rates they would go for. However, they need to know which one to choose between floating and fixed interest rates.
Now that individuals know how to calculate home loan EMI, they should also know that several financial institutions offer pre-approved offers to draw more customers. These offers are applicable for home loans, loan against property etc. These offers speed up the home loan process and simplify it. Borrowers can enter their names and contact details to quickly check their pre-approved offers.
To sum it up, availing a home loan is now an easy and hassle-free process. Individuals no longer need to stand in long queues or spend hours talking with lenders. They can now calculate home loan EMI and eligibility using online tools. To start the process, individuals should conduct thorough research and start filling up home loan application forms.
