Step by Step Guide: How to Use Home Loan Calculator
A home loan calculator is handy that allows the borrowers to know the exact EMI payable to the lender beforehand. But, not many people don’t understand its importance or know how to use it. So, here is a useful guide to help you use a home loan calculator.
A home loan is a high-value loan. And, it often lasts for about two decades. This means, as a borrower, you are indebted for a long duration, or until the full home loan amount, including the interest, is paid in full. Since it is probably one of the most significant credits you may avail, you must plan your finances well and consider the affordability before applying for a loan.
You must be comfortable with the fact that a fixed portion of your income will go towards the home loan EMI (equated monthly instalment) payment until the end of the loan tenure. To understand the EMI’s impact on your overall financial planning, it is advisable to use the EMI calculator home loan. It is a free online tool that is available on all lender websites. Let us know more about it.
What is a home loan EMI calculator?
A home loan EMI calculator is an online tool that allows you to compute the EMI amount payable to the lender against the amount you borrow. It helps you understand the EMI you must pay over a stipulated period, at an interest determined by the lender based on the amount you borrow.
The tool is free to use, and it is available easily online on all lender websites. Before you apply for a home loan, it is advisable to use this tool to use different permutations and combinations of loan tenure, interest rate, and loan amount to determine an affordable EMI.
How to use a home loan EMI calculator?
The EMI calculator home loan tool has three critical components –
- The principal amount (the amount you wish to borrow)
- The interest rate (interest levied by the lender)
- The loan tenure in months
The formula for calculating the home loan EMI
The home loan EMI calculator uses the following formula to compute the EMI:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
In the above formula,
P is the principal amount
R is the rate of interest
N is the loan repayment tenure or number of EMIs you must pay every month
When you enter the details in the calculator, the tool will automatically do the calculation, and in the result, you will see:
- The EMI – the amount you must pay to the lender every month till the end of the loan tenure, or till you repay the full amount.
- The breakup – you can know precisely the interest and the principal amount you repay with each EMI.
- The amortisation schedule – the amortisation schedule is essentially a chart that gives you a complete breakup of the principal amount and the interest repaid to date and the amount due till the end of the tenure.
Benefits of using the home loan EMI calculator
Now that you know how the EMI calculator home loan tool works and the formula it uses to compute the EMI, it would help you understand the benefits of using it.
It helps you get an accurate breakup of the financial charges associated with the home loan. When you apply for a home loan, you need to pay certain charges like the loan processing fee, stamp duty, property assessment charges, etc. These expenses take a significant amount. And, knowing about these will help you get a fair idea about the actual home loan cost.
The home loan EMI calculator saves you from the hassles of doing a manual calculation and avoid the risk of errors. The tool is easy to use. You must enter the details in the calculator, and it will give you accurate results instantly.
It allows you to compare the home loan interest rates from different lenders and make an informed borrowing decision. Remember, even a 0.10% difference can make a huge difference in saving a valuable amount in the long run.