Home loan

Home Loan EMI: How to Calculate EMI from New Home Loan Interest Rates


Home loan borrowers should be sure to calculate the Equivalent Monthly Payments (EMI), as this clearly indicates how much a person has to pay in EMI each month. Calculating the EMI allows you to make an informed decision on how much you need to pay each month so that a monthly expense can be planned accordingly.

This helps determine the amount of loan that can be obtained, as well as the required own contribution and the cost of the property. Therefore, understanding your EMI is key to determining your eligibility for a home loan and better planning your home purchase.

What is NDE

EMI stands for ‘Equated Monthly Versement’, which is the amount you will pay us monthly until the loan is fully repaid. This involves paying off the principal as well as paying interest on the outstanding balance of your home loan.

How are loan EMIs calculated?

According

here are the simple steps to calculate your EMI.

The formula for the EMI calculation is –

P x R x (1+R)^N / [(1+R)^N-1] where-

P = Principal loan amount

N = Loan term in months

R = monthly interest rate

The interest rate (R) of your loan is calculated per month.

R = Annual interest rate/12/100

If the interest rate is 7.2% per year, then r = 7.2/12/100 = 0.006

For example, if a person is granted a loan of Rs 10,00,000 at an annual interest rate of 7.2% for a duration of 120 months (10 years), his EMI will be calculated as follows:

EMI = Rs 10,00,000 * 0.006 * (1 + 0.006)120 / ((1 + 0.006)120 – 1) = Rs 11,714.

The total amount payable will be Rs 11,714 * 120 = Rs 14,05,703. The principal loan amount is Rs 10,00,000 and the interest amount will be Rs 4,05,703.

It’s important to choose the right loan amount with an EMI that fits your budget and a repayment period that meets your life goals. You will have to experiment with several combinations to discover the best one. Performing this operation manually may take some time.

Click here to use the ET Online Home Loan Calculator.

With RBI signaling that the days of low interest rates are over, many banks have started raising interest rates on loans, including home loans. It would therefore be prudent to know how much your home loan EMIs will increase once your bank’s hike takes effect.

FAQs

According to the HDFC website, here are some important FAQs

1. When does my home loan EMI start?

IMEs start from the month following the month in which the loan disbursement is made. For loans for properties under construction, the EMI typically begins after the full home loan is disbursed, but clients can choose to start their EMIs as soon as they qualify for their first disbursement and their EMIs will increase proportionately with each subsequent disbursement. For resale cases, since the full loan amount is disbursed at once, the EMI on the full loan amount starts from the month following the disbursement

2. What is pre-EMI interest on a home loan?

The pre-EMI is the monthly interest payment on your home loan. This amount is paid during the period until full disbursement of the loan. The actual term of your loan – and EMI payments (including both principal and interest) – begins once the pre-EMI phase is complete, i.e. after the loan has been fully disbursed.

3. How does the repayment of your mortgage work?

A home loan is usually repaid in equivalent monthly installments (EMI). The EMI includes principal and interest components which are structured so that in the early years of your loan the interest component is much larger than the principal component, while towards the second half of the loan the principal component is much more important.

4. What is the maximum home loan I can get?

You are required to pay 10-25% of the total cost of the property as “own contribution” depending on the loan amount. 75-90% of the cost of the property is what can be used as a home loan. In the case of a construction, renovation and house extension loan, 75 to 90% of the construction/renovation/extension estimate can be financed.


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