A home loan EMI calculator is a remarkable tool that aids inefficient financial management by helping users understand their repayment capacity before applying. While under-borrowing can cause financial constraints, over-borrowing can unnecessarily burden repayment, and EMI calculators help in striking the right balance between them.
– According to The Hindu Business Line, most home loan providers faced approximately a 20%-30% rise in delinquency rates in 2020.
The rising rate of loan defaults is proof of low repayment capacity which several borrowers over-estimate during application. Using an online EMI calculator can greatly help applicants compare the cost of borrowing against their financial standing and plan repayments accordingly to reduce the chances of default.
How can you use an online EMI calculator?
Although the functionality of a housing loan calculator may vary across lending platforms, 3 basic inputs remain constant. Here are how borrowers can fill in the same after visiting their lender’s online EMI calculator page.
Step 1: Set your required is the amount on the scale provided. You can type it as well.
Step 2: Select your preferred repayment tenor.
Step 3: Choose the interest rate levied.
Once all the above details are entered, the calculator will display the following information as output.
- Total interest amount.
- Total repayment, including principal and interest payable.
- EMI payable per month.
- An amortization schedule displaying the break-up of the yearly principal component and an interest component, as well as the outstanding balance.
Based on these results, borrowers can plan part payments to save on interest outgo. In this regard, they can use the home loan EMI calculator with prepayment. This tool can help them estimate the total savings on repayment, tenor reduction, and remaining EMI amounts and accordingly decide on a suitable prepayment amount for increased savings.
How does a home loan EMI calculator work?
The mathematical formula to calculate home loan EMI is given as follows:
EMI = {P x r x (1+rn)} / {(1+r)n – 1}
Here, P indicates principal loan amount, r stands for interest rate per month, and n is repayment tenor in months.
Individuals opting for manual calculation based on the above formula should first divide the annual interest rate by 12 to get the value of r. However, this process of manual calculation can be quite complex and might lead to errors. An online home loan calculator can help prevent such inconveniences significantly.
Benefits of using an online EMI calculator
Here are some of the advantages borrowers can enjoy by using an online EMI calculator.
– Almost all lending institutions feature a home loan EMI calculator on their websites, which loan-seekers can use free of cost.
– They are extremely easy to use and require just 3 inputs – principal, tenor, and interest rate.
– Manual calculations can be complex, time-consuming, and even involve mistakes. Contrastingly, an online EMI calculator provides precise results, that too, within seconds.
– An online calculator helps individuals quickly compare the different home loan interest rates and EMIs under multiple loan providers before choosing the most suitable one.
– Most importantly, this online tool helps individuals estimate and adjust the loan amount according to their repayment capacity. Thereafter, they can borrow a suitable amount to manage their finances better and avoid the risk of default.
With reference to the last point, potential borrowers can lower the EMIs predicted by an online calculator in several ways.
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How can you reduce your home loan EMI?
Following are a few ways in which borrowers can reduce their EMI payments –
- Build high eligibility to enjoy lower interest rates.
- Make a prepayment of home loans.
- Select a longer repayment tenor.
- Make a greater down payment to reduce loan requirements.
- Make sure to claim all applicable home loan tax benefits under Section 80C, 24(b), 80EE, and 80EEA to save on repayment.
If an existing loan seems unmanageable even after adopting all the above measures, consider a home loan balance transfer to avail of lower interest rates.
Look for HFCs facilitating balance transfer without levying a high charge. Also, check for benefits like pre-approved offers to make the loan application process hassle-free. These offers are available on some financial products, including home loans, loans against property, etc. You can check your pre-approved offer by providing your contact details.
Check for any such loan offer and use your chosen lender’s home loan EMI calculator to check the net savings this refinancing can offer you.