How to calculate home loan EMI?
Home buying does not only involve a significant amount of capital investment but also home loan plans and calculations of monthly instalment that one needs to pay. This amount calculation is important as it is a commitment of regular monthly payment and thus proper calculation is required to arrive at a realistic ballpark.
Factors that determine EMI:
Value of the property
The final value of the property depends on location, size and the other amenities of the property. The final price of the property is a major factor in arriving at the EMI amount.
Annual earning and other EMI amount
Your yearly income and thus the monthly earning determines your paying back capacity. The Ideal limit to use up in paying EMI is 50% of your monthly income. If you already have an ongoing EMI from another borrowing that is 20% of your income, you can use only another 30% of your income in paying EMI.
Rate of interest
The home loan rate offered by various banks is different. It also depends on the borrower's credit score and the stability of the income.
Number of years
The number of years that you take the loan for also affects your EMI amount. If you consider doing a 50% down payment, you will, in turn, borrow the loan for a lesser tenure which will reduce your EMI amount.
Moneylenders often determine this tenure basis the time when the borrower will reach the age of 60 years. This means if you are 40, your home loan tenure will be 20 years. But also keep in mind, the higher the tenure of the loan, the more interest amount you will pay.
Now these factors combined will establish the EMI amount. Ideally, the maximum home loan amount one can get is 90% of the property value but in the market scenario, money lenders offer only 80% of the property value on a loan.
There are various online tools to directly calculate your EMI amount, you can also excel to draw an EMI chart.
EMI = [P x (R/100) x (1+R/100) ^n] / [(1+R/100)^ n-1]
Here, P= Principal loan amount, R= Rate of interest per month, n= Number of monthly instalments.
Assuming, P= Rs 30 lakh, R= 9 percent per annum= 9/12= .75 per cent per month, N= 180 months
EMI = ((300000*.75 /100*(1+.75 /100) ^180/((1+.75 /100)^180-1))) = Rs 30,428
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