A Complete Guide On How to Calculate Your Housing Loan EMI

housing loan
housing loan

Before applying for a home loan, there are several aspects that an individual must consider. One of the most crucial among these is the EMI amount to be paid to settle this debt. This payment is dependent on the home loan amount you apply for, alongside factors like interest rate and tenor. 

This EMI amount should be taken into account right at the outset of applying for these credits. Prior knowledge of your monthly cash outflow will help avoid financial pitfalls in the form of repayment defaults. 

You can use a housing loan EMI calculator offered by financial institutions to find your monthly installment amount. While this calculation can be done manually, it is recommended to make use of a calculator to avoid errors. 

Parameters to input in a housing loan EMI calculator

If you are confident that you satisfy your home loan eligibility criteria, then it’s time you begin calculating your EMI amount. When using the online EMI calculator, you will need to input the following information. 

  • Principal amount: The EMI amount payable depends mostly on your principal loan amount. The interest that the lender is charging is added to the amount borrowed to calculate the EMIs. 
  • Interest rate: The home loan interest rate is perhaps the most important factor that influences your EMI payment. Financial institutions offer the loan against varying rates of interest; therefore, it is crucial to choose the lender wisely. Also, the interest rate on home loans can be fixed or floating. The total interest outgo can vary if the borrower chooses a floating rate of interest.  
  • Tenor: The tenor of your loan depends on your repayment capacity and the loan amount you are applying for. You will need to input this tenor period in your EMI calculation to find your monthly outflow.

    Usually, a home loan repayment can extend up to 20 years. The longer the tenor, the smaller the EMI amount payable. However, you, as the borrower, will have to bear a higher interest outgo. 

Taking note of these factors is extremely crucial before calculating your housing loan EMIs.

Also Read: Pradhan Mantri Awas Yojana: Know its Meaning, Eligibility, and Benefits

How to calculate housing loan EMI? 

The mathematical formula to compute the monthly home loan instalment amount is given as follows – 

EMI = P X R X [{(1 + R) ^ N} / {1 – (1+R) ^ N}]

In this formula, 

P = principal loan amount

R = interest rate per month

N = Total number of months during the tenor 

An example will help you understand the process of calculating your monthly interest rate better.

Assume that your principal loan amount is Rs.30 lakh, the monthly rate of interest is 0.75%, and tenor is 180 months which is 15 years. 

So, here, P = Rs.30 lakh, R = 0.75% and N = 180 months 

Therefore, EMI = 3000000 X 0.75% X [{(1 + 0.75%) ^ 180} / {1 – (1+0.75%) ^ 180}]

= Rs.30,428

Therefore, your monthly outgo, in this case, is Rs.30,428. 

Calculating the EMIs manually using the formula can be quite time-consuming. Therefore, it is recommended to make use of a housing loan EMI calculator. 

If you need to calculate your home loan EMI, visit your preferred lender’s website and visit the page for housing loan EMI calculator. Enter the details to get an accurate result on the EMI amount. 

While at it, look for pre-approved offers on your home loan. Leading HFCs also make these offers available on financial products like loan against property, etc. Check your pre-approved offer by providing some basic details like name and contact number. 

Therefore, when applying for a home loan, make sure to calculate your EMI amount and interest payable first. Also, ensure that your home loan EMIs fit within the recommended 40% cap on FOIR to maintain financial stability.