How Is The Rate Of Interest Calculated On Home Loans And EMIs?

How Is The Rate Of Interest Calculated On Home Loans And EMIs?

For most of us, buying a home is a dream! Owning a house is one of the most gratifying and rewarding projects. So do you actively want to possess property but stepping back due to financial barriers? Confused about the complexities involved in the calculation of interest rate on EMI (Equated Monthly Instalments) You can instantly calculate the approximate monthly repayment amount with simple and user-friendly tools designed.

Relieve yourself from the tedious and stressful methods of calculation. Almost all the financial institutions have updated their websites with an online home loan EMI calculator. By simply entering the principal home loan amount you wish to take, duration of the loan, and expected interest rate in the respective fields, this tool will instantly calculate the EMI amount. To finance your dream home get a reasonable idea of monthly outflow that will contribute towards your home loan repayment.

Importance of an EMI calculator

A home loan EMI calculator is easy to use. Knowing the right EMI allows you to decide the right home loan tenure. Your equated monthly instalment amount is calculated within seconds. The total interest payable on your loan and the total cost of your loan, i.e. principal + interest, is identified quickly. It is possible to do proper loan management. As per your convenience, you can select a tenure. If you wish to see how your prepayments can impact your EMI before the loan term ends, you can know the same with the help of the home loan EMI calculator.

Here is your answer to the questions How to calculate rate of interest on home loan? With the exact EMI calculation process functions.

A house EMI calculator is the easiest and quickest way to get a proper EMI amount. To determine your EMI amount, you just need to choose the loan amount you wish to borrow, rate of interest and the tenure can be set both in terms of years or months by selecting the desired option. EMI amount and interest payable on the loan will be calculated instantly. However, the mathematical formula to calculate EMI on loan is –

EMI = p × r × (1 + r) n / ((1 + r) n – 1)

Here, P stands for the principal loan amount, R stands for the rate of interest on the loan, and n is the tenure in a number of months.

One of the alternate ways can be by the use of following MS-Excel formula to calculate your loan EMI manually: PMT (rate, nper, pv)

rate = Personal loan interest rate (in percentage)
nper = Loan tenure in months i.e. number of EMIs payable
pv = Loan principal (present value)

Example 1:

For a Principal amount of Rs. 20,00,000 borrowed at an interest rate of 10% per annum for a tenure of 10 years (which is 120 months), EMI can be calculated as follows – [20,00,000x10x(1+10)120]/[(1+10)120-1], which is equal to Rs. 26,430 per month.

Example 2:

Home Loan EMI for ₹ 1 Lakh loan amount at lowest 7.25% interest rate offered for different tenures. (A few values have been rounded off to the nearest hundred)

Calculated Results For Home Loan EMI 5 Years 10 Years 15 Years 30 Years
EMI for a loan amount ₹ 1 lakh at 7.25% ₹ 1,992 ₹ 1,174 ₹ 913 ₹ 682
Total amount you pay back to the bank including principal and interest ₹ 1.20 Lakh ₹ 1.41 Lakh ₹ 1.64 Lakh ₹ 2.46 Lakh
Interest during the loan tenure ₹ 19,520 ₹ 40,880 ₹ 64,340 ₹ 1.46 Lakh

The above table shows, your EMI on the loan will be lower if your loan tenure is long. However, your total interest outgo is significantly higher in a long tenure loan.

In the above example, for a ₹ 1 Lakh loan for a period of 30 years , you pay the lowest EMI of ₹ 682 . However, you pay an interest of ₹ 1,45,520 on a ₹ 1 Lakh loan.

In contrast, if you take a ₹ 1 Lakh loan at the lowest loan rate offered for a period of 15 years, you pay a higher home loan EMI of ₹ 1,992 and pay an interest of only ₹ 19,520 which is less than half of what you paid in a 30 years loan.

Do not default on your EMI, in case you happen to miss any EMI, the bank charges a late payment fee. Hence, it is better to plan your finances rightly and to choose your loan tenure wisely.

At the bottom

EMI calculator crunches numbers to give you the exact EMI amount to repay each month. Using the home loan EMI calculator, you can compare loan offerings by different lenders.

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