Generally, home loans are big-ticket and long-term financial commitments. A slight change in home loan EMIs (equated monthly instalments) can impact the borrower’s monthly budget. Taking a home loan with proper repayment planning is crucial. Home loan EMIs primarily depend on the loan tenure and interest rate.
Interest Rate
Interest rate is the most important factor in the case of home loan EMIs. Generally, home loans are provided at floating interest rates. Floating rates are dynamic rates which keep changing every now and then, because of change in fiscal policy governed by the RBI (Reserve Bank of India).
The credit score depicts the borrower’s creditworthiness. An applicant with a good credit score of 750+ can get a home loan at a lower interest rate. The location of the property also affects interest rates and so does the EMI.
Loan Tenure
The tenure of a home loan determines the EMI amount. Since it is a big-size loan, even a small change in the loan term can impact the EMI amount significantly.
The EMI amount can be decreased with a longer-term loan, but it will increase the overall interest amount and make the borrowing more expensive. The tenure should be decided based on the estimated loan EMI and monthly income.
Down Payment
For a particular home value, borrowers need to pay a certain amount as a down payment. The higher the down payment, the lower the loan amount which consequently decreases the EMI.
Generally, it is 20% of the home value. If the borrower can manage to pay a higher down payment, their monthly payment burden will be lesser.
Know About Calculating EMI Using a Home Loan Calculator
EMI on a Rs.40 lakh home loan for different tenures, borrowers can use a home loan EMI calculator. A home loan EMI calculator is a user-friendly and easy-to-use online tool that takes only a few seconds to make EMI calculations. It makes the calculations fast and accurate which can help in deciding the right tenure for affordable EMIs.
The steps to use an EMI calculator are as follows:
- Step 1: Enter the home loan amount required.
- Step 2: Input the interest rate applicable as per the lender’s loan eligibility, and loan size.
- Step 3: Choose a tenure during which EMIs can be paid comfortably considering cash flow.
A home loan EMI calculator needs just a few figures to display the calculation result within a few seconds. It is a different tool from a home loan interest calculator. Borrowers can adjust the loan tenure to choose from a low EMI or low borrowing cost.
Illustration – Calculating EMI on a 40 Lakh Home Loan
Let us show the calculations for EMI on a 40 lakh home loan for a tenure of 20 years, 25 years and 30 years. Lending rates for a 40 lakh home loan for salaried employees and self-employed individuals can start from 9-10%, depending on how well the applicant meets the eligibility criteria.
Here, let us assume the applicant is a salaried individual.
- In the first scenario, taking the loan amount as Rs.40 lakhs, the applicable interest rate is 9% and the loan tenure is 20 years. The loan EMI will be Rs.35,989.
- For the second scenario, let us increase the loan tenure to 25 years. The loan amount is Rs.40 lakhs and the applicable interest rate is 9%. The estimated loan EMI will be Rs.33,568.
- In the third scenario, the loan amount is Rs.40 lakhs, the applicable interest rate is 9% and the preferred loan tenure is 30 years. It is the maximum home loan tenure for which one can apply. It makes the home loan EMI Rs.32,185.
Borrowers can experiment with various loan principal amounts and tenure combinations to choose an affordable EMI. Before making the home loan application, look at the factors that can reduce or increase the home loan interest and EMI, like down payment, interest rate, CIBIL score and tenure.
Own a house on affordable EMIs estimated using an online EMI calculator available at the lender’s official website. Loan-seekers can use the home loan interest calculator to make informed decisions towards this long-term liability. Plan finances for loan repayment beforehand using the estimated loan EMI.
Also Read: Funding Your Venture: A Woman’s Guide to Small Business Loans
