Home Loan EMI Calculator Jul 2017

Factors affecting Home loan EMI

• Loan amount – This is the amount you want to borrow to fulfil your needs. Home loan amount depends on value of the property. Higher the home loan amount, higher will be the EMI.
• Rate of interest – This is the interest charged on borrowed loan amount. In early years of repayment, interest component is very high and as the tenure comes to an end, interest component reduces and principal component increases. Lower the home loan interest rate, lower the EMI.
• Loan Tenure – Longer the home loan tenure, lower the EMI. Longest loan tenure available across banks in India is 30 years, subject to borrower’s current age and retirement age. Following table provides a comparison of EMI for a Rs. 1 lakh loan at different tenures:

• At the lowest home loan rate of 8.35% the lowest EMI for maximum tenure of 30 years is Rs. 976 per lakh. In this case you have to pay an interest of Rs. 172,880 on your loan amount of Rs. 1 lakh over a period of 30 years
• If you decide to take a loan for 15 years only, for the same rate of interest you will pay a higher EMI of Rs. 976. In this scenario you pay a total interest of Rs. 75,680 on your loan amount of Rs. 1 lakh over a period of 15 years, which is less than half of what you paid for a 30 years loan.

Amortisation Schedule for Home Loan

An amortisation schedule gives the details about the payments made towards a home loan. An EMI is composed of principal and interest component. EMIs are equal instalments you pay to repay your loan.

While each EMI is equal, the components of EMI that is the interest payment and principal payment are not the same every month. In early days of repayment, interest component is high and principal component is low. This is the reason that many times when you decide to prepay your loan during the first few years, you realise that you have repaid a very small proportion of your loan despite paying regular EMIs for years.

On an average, you repay back only 3 - 4 % of your loan in year 1 of taking a home loan and not more than 20 - 21% of your home loan till year 5. So, if you take a loan of Rs. 1 lakh and you decide to prepay your loan at the end of five years, you will still need to pay back Rs. 80, 000 or more to your bank. Hence, it is important to understand your amortisation table,before taking a loan.

Suppose you take a home loan of Rs. 1,000,000 for 15 years for the construction of your house at an interest rate of 8.50%. EMI calculated is Rs. 9,847 and total annual EMIs to be paid is Rs.118,169. The EMI schedule of your home loan for next 15 years (from January 2017 to December 2031) is explained below in the table -

• Each EMI comprises of a component of interest and principal repaid. Component of interest paid goes down while component of principal repaid goes up in each consecutive EMI. In the earlier years, you repay a very small amount of your principal component.
• In the above illustration, on a home loan of Rs. 10 lakh, taken at the lowest interest rate of 8.50% , EMI is Rs. 9,847 and annual total of EMIs is Rs. 118,169, interest component is around 70% while principal component is around 30% in year 1 of disbursements. You repay back only 3.4% of the total principal despite paying 12 EMIs during first year.
• In year 2021(year 5), on the same loan, interest comprises 59% of total EMI payments with the rest 41% constituted by principal repayments. Upto year 5, you cumulatively repay only 20.6 % of your total loan after paying EMIs for 5 year or 60 months. If you decide to prepay your loan at this stage, you will have to prepay 79.4% of our original loan amount.
• In year 15, interest component is around 4% while principal component is around 96%. Upto year 15, you have cumulatively repaid 100% of your total loan.

Home Loan EMI Calculator Formula

It is difficult to calculate EMI manually as it is a very long and time consuming process. To calculate EMI, you need to know about the loan amount, interest charged on the amount and the tenure for which you want to borrow the amount. The mathematical formula by which house loan EMI is calculated is mentioned below -
P*r* (1+r)^n/([(1+r)^n]-1)
In above formula, P is the loan amount that you want to borrow
r is the rate of interest per month
n is the tenure of loan repayment in months
It is advised to calculate loan EMI by using EMI calculator as it is very easy and time saving process and helps you in calculating your EMI in seconds.

House Loan Calculator Benefits

EMI calculator calculates your house loan EMI and has multiple benefits, which are listed below -

• Saves time : EMI calculator saves your time by calculating EMI in seconds and do not let you waste your time in doing tedious and time consuming calculations. You'll get the output immediately as you'll enter the home loan related details.
• Accurate results : Manual calculations can sometimes lead to wrong results which can change your house loan EMI and make you change your decision while taking home loan. That's why, it is well-advised to use online EMI calculator to get correct results.
• Plan your finances : Housing loan EMI calculator tells you about EMI and also let you know that you would be able to pay that amount back or not. Always go for the amount that won't affect your budget and also not affect your credit score if you are default in payments.
• Allows to evaluate multiple schedules: EMI calculator also allows you to view the amortisation schedules and EMIs for various combinations of loan tenures and interest rates, thus allowing you to choose the EMIs that suits your repayment or servicing capabilities.

Home Loan Prepayment

Part prepayment is a huge amount that you pay before the due date of your EMI when you have surplus money with yourself. When you part prepay your loan, bank gives you two options

• To reduce your EMI and keep the tenure same,
• To keep the EMI same and reduce your repayment tenure.

The choice between the two options depends on your choice which is also a function of your repayment capacity on a monthly basis. We have explained the way EMI or tenure re-adjust after part pre-payment of housing loan in the illustration below:

Suppose you take a loan of Rs. 1,000,000 for 10 years at an interest rate of 8.50%. Your EMI of the loan is Rs. 12,399 per month and annual total of EMI is Rs. 1,48,788. This is how your original loan schedule looks like till Year 5. On loan amount of Rs. 10 Lakh, you make payment of Rs. 12,399 every month and annual payment of Rs. 1,48,788. By the end of year 1, you have outstanding principal of Rs. 6,04,321 and you have to pay another 60 EMIs to fully pay down your loan. The original schedule of you loan till year 5, has been shown in the table below:

Now at the end of year 5, you have surplus amount of Rs. 2,50,000 and you decide to prepay the loan. You have two options:
Option 1: Reduce your loan tenure and keep your EMI same
Option 2: Reduce your EMIs and keep the loan tenure unchanged

If you have Rs. 2,50,000 as surplus amount and decide to keep the EMI same and reduce the tenure, this is what will happen.

At the end of 5 years, when you prepay an amount of Rs. 2,50,000, outstanding principal is reduced to Rs. 3,54,321 as comparison to Rs. 6,04,321 in your original schedule. As your loan outstanding reduces and you opt to reduce your loan tenure, at the end of 5 years you are left to pay only 33 more EMIs compared to 60 EMIs as planned in your original loan schedule. As a result of this change, your total housing loan tenure gets reduced to 93 months compared to 120 months, which was scheduled earlier. In summary, you repay back your complete loan in 27 months less than what you had planned earlier and continue paying an EMI of Rs. 12,399 every month. Please refer to table below to understand the EMI calculations in case of a prepayment:

At the end of 5 years, when you prepay an amount of Rs. 2,50,000, outstanding principal is reduced to Rs. 3,54,321 as comparison to Rs. 6,04,321 in your original schedule. As your loan outstanding reduces and you opt to reduce EMI, your revised EMI stands at Rs. 7,269, compared to Rs. 12,399 earlier. Your remaining loan tenure remains unchanged at 60 months and you pay an EMI of Rs. 7,269 which is lower by Rs. 5,130 as per your original loan amortisation schedule. Please refer to table below to understand the EMI calculations in case of a prepayment under Option 2:

Reduction in EMI can ease your monthly expense burden and helps you maintain your standard of living. You pay lower interest compared to what was planned in the original loan schedule as your EMI reduces. However, you still pay higher interest compared to Option 1, in which you decide to reduce your loan tenure after prepayment.
If you plan to prepay, continuing to pay same EMI over a shorter tenure can result in significantly lower interest amount on your home loan and hence, should be the preferred choice whenever possible.

How is Home Loan EMI calculated?

• Home Loan EMI Calculator uses combination of loan amount, loan tenure and interest rate to calculate housing loan EMI instantly online.
• What’s more, it also tells you how much interest you would pay over the life of the loan. Longer the loan tenure, more the amount of interest for same loan amount and interest rate.

How long can I take home loan?

Most of the banks offer home loan for a maximum period of 30 years. If you apply for a longer repayment tenure, your EMI for home loan will be less. However, longer loan tenure increases the amount of interest payment which makes your home loan costly.

How much should I pay as monthly EMI?

Monthly EMI depends upon your income and expenses. Generally, banks advise you to limit your EMI to 35 to 45% of your net income so that you can pay your EMI without any burden or difficulty. You can calculate your EMI online which will help you to know your repayment capacity.

Is the home loan EMI fixed or can it change in future?

• In case the floating rate of interest on your home loan increases, your bank will typically keep the EMI constant but increase the loan tenure. So, you will pay the same EMI but for a longer duration. However, in case the interest rates increase to an extent that the revised loan tenure is more than the maximum permissible by your bank, the bank may increase your EMI amount.
• For partly disbursed loans availed under tranched EMI scheme, your loan EMI will increase with each disbursement.
• When you make a prepayment of your loan, you can opt to either reduce the EMI and keep the loan tenure unchanged or keep the EMI unchanged and reduce the loan tenure. It is more beneficial to keep the EMI same and reduce the loan tenure. However, you may opt to reduce the EMI in case you so desire.
• Any other situations as per terms and conditions of the loan agreement.

What is a pre-EMI on a home loan and how is it different from regular EMI?

In a pre-EMI interest scheme, bank offers the home loan borrower an option to pay only monthly interest on the loan disbursed till the completion of the property. In this case, the principal The EMIs (which consists of the interest component and principal repayment) on the loan commences only after the loan gets disbursed completely. Since no principal is being repaid, the pre EMI amount is always less than the EMI.

• A pre EMI option helps manage immediate cash outgo when the property is under construction. This is particularly helpful when the home loan borrower is staying on rent and may not be able to afford both rent and EMI at the same time. E.g., on a 20 year Rs. 25 lakhs home loan at 9.35%, the EMI comes to Rs. 21,459 while the pre EMI will be only Rs. 17,396.
• Income tax rebate on principal repayment under section 80-C is available only post completion of the property. So, the principal component repaid on EMI in case of the full EMI option during construction phase is not eligible for any income tax rebate. Under pre EMI option, principal repayment will start only after construction is completed. Hence, the entire principal repayment will be available for rebate under income tax subject to overall cap under Section 80-C.
• Interest is payable only on the disbursed loan amount. As a comparison, EMI may be calculated on the entire sanctioned loan amount and hence may impose a burden on the borrower.

• Loan gets paid off over a longer period. So, borrower carries debt for a longer period of time.
• Income tax rebate on principal repayment under section 80-C is available only post completion of the property. So, the principal component repaid on EMI in case of the full EMI option during construction phase is not eligible for any income tax rebate. Under pre EMI option, principal repayment will start only after construction is completed. Hence, the entire principal repayment will be available for rebate under income tax subject to overall cap under Section 80-C.
• Longer tenure means you pay more absolute interest amount to the bank even at the same rate of interest.
• There is another option that some banks offer and which many borrowers find attractive. This is called the tranched EMI option. Under the tranched EMI option, borrower pays EMI on the disbursed loan amount and not on the sanctioned loan amount. The EMI changes with each home loan disbursement and eventually comes to the full amount on final disbursement. In this case, principal repayment starts in the first month itself but is linked to the actual disbursement. The borrower pays less than the full EMI but more than the pre-EMI.