When applying for a home loan, a borrower needs to keep in mind different variable lending terms to determine which recourse is the most beneficial financial option for them.
For an instant, depending on their economic goals, it is always advisable that borrowers use the popular calculators to check their monthly expenditures.
How Home Loan EMI Calculator Works
The EMI is decided by lenders with the help of this aforementioned formula:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
In this calculation, P stands for the principal loan amount, R for the interest rate, and N for the total repayment tenure expressed in months.
To elaborate, the principal amount refers to the borrowed sum. Therefore, if a comparatively higher amount has been borrowed, it will result in higher EMI spending. Similarly, a lower borrowed amount will effectively reduce this monthly cost.
Moreover, a borrower has to decide whether a floating or fixed rate of interest is ideal for him or her. Notably, the most prominent lenders in India usually charge low interest per annum.
The tenure is the entire timespan that a borrower gets to reimburse his or her lender. Interestingly, when it comes to a home loan, repayment tenure can be as long as up to 30 years. However, a borrower has to evaluate his or her options to determine what the ideal loan term is.
For example, a longer repayment period can reduce the monthly spending for the borrower. However, with such a prolonged time, the total interest outgo will also increase significantly.
Home Loan EMI Calculation Explained
Let’s consider that an applicant has borrowed Rs. 15 Lakhs from a financial organisation. If the loan has been sanctioned at an annual rate of 6% for 10 years – or 120 months, the calculation will look like this:
Equated Monthly Instalment = 1500000×0.005x (1+0.005)120/((1+0.005)240-1)
In other words, the 15 lakh home loan EMI would be Rs. 1665 in this regard.
Importance of a Home Loan EMI Calculator
Here’s how a home loan EMI calculator helps a borrower:
- Derive suitable EMI
A borrower can customise these aforementioned aspects in the EMI calculator as per his/her personal economic standing to get the precise EMI amount payable. Consequently, a lowered rate of interest or longer tenure can effectively bring down the EMI expenditure.
Notably, spending a hefty amount on the EMI can be a challenging endeavour for borrowers, increasing the risk of defaulting on the repayment. Such credit behaviour can negatively impact the credit history of an applicant, reducing their CIBIL scores.
So, with the help of the EMI calculator, a borrower can determine which lending terms are his or her best-suiting options. Accordingly, the applicant can compare the terms and conditions of different leading financial institutions of the country to ensure he/she will not go over budget.
- Easy and precise calculation
Additionally, when a borrower is using such a calculator, she or he can skip the hassle of calculating a complicated mathematical formula manually. With this tool, applicants will be able to get the precise EMI payable in a matter of mere seconds.
It is wise to use reliable online calculators, such as the ICICI home loan EMI calculator to ensure proper results and plan your repayment accordingly.
Tax Benefits on Home Loan EMI
Under section 80C of the Income Tax Act, 1961, a borrower can claim up to Rs. 1.5 Lakh as a deduction for the principal portion of the EMI paid in a financial year. However, provisions under this section apply only if the borrower’s residential property is not sold off within 5 years.
On the other hand, an applicant can claim up to Rs. 2 Lakh as the interest portion of the EMI as a deduction for self-occupied residential properties. Alternatively, this upper limit is not applicable for let-out properties. Notably, these benefits are allowed under regulations noted in Sec 24.
How to Reduce EMI Expenditures?
There are a number of ways a borrower can cut down his or her monthly repayment outgo in EMI.
- Opt for high downpayments
For starters, borrowers can opt for a hefty downpayment. This way, the total loan amount can decrease exponentially – affecting EMI expenditure positively.
- Make prepayments
Additionally, if a borrower chooses an alternative of partial prepayment, such endeavour can also play a pivotal role in reducing the instalment amount. To elaborate, this prepayment allows a customer to pay off an additional amount rather than the scheduled EMI expenditure.
Moreover, when an applicant chooses to prepay, he or she also has a scope of reimbursing outstanding principal sum of home loan. Additionally, paying an extra EMI every year can also reduce the economic burden of an individual in manifold ways.
Keeping these factors in mind can help loan applicants to reduce their monetary outgoes per month significantly. Additionally, with the help of a home loan EMI calculator, borrowers can construct a blueprint of achieving long-term financial goals.