Loan against property EMI Mar 2020

Factors affecting Loan Against Property EMI

• Loan amount – Loan against property loan amount depends upon the value of property to be mortgaged. Higher the loan against property amount, higher will be the EMI.
• Rate of interest – Interest amount to be paid is generally high in the initial years and as the tenure comes to an end, interest component reduces and principal component increases. Lower the Loan against property interest rate, lower will be the EMI.
• Loan Tenure – Longest loan tenure available for mortgage loan in India is 20 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:
  

  	5 years	10 years	20 years
  EMI for a loan amount Rs. 1 lakh at 8.70%	Rs. 2,061	Rs. 1,251	Rs. 881
  Total amount you pay back to the bank including principal and interest	Rs. 1.54 Lakh	Rs. 2.36 Lakh	Rs. 5.59 Lakh
  Interest you have to pay over loan tenure	Rs. 53,778	Rs. 1.36 Lakh	Rs. 4.59 Lakh
• At the lowest Loan against property rate of 8.70% the lowest EMI for maximum tenure of 20 years is Rs. 881 per lakh. In this case, you have to pay an interest of Rs. 4.59 Lakh on your loan amount of Rs. 1 lakh over a period of 20 years
• If you decide to take a loan for 5 years only, for the same rate of interest you will pay a higher EMI Rs. 2,061 . In this scenario you pay a total interest of Rs. 53,778 on your loan amount of Rs. 1 lakh over a period of 5 years, which is less than half of what you paid for a 20 years loan.

Mortgage Calculator Formula

It becomes difficult to calculate your loan EMIs manually as the process is time taking and difficult. If you want to calculate your EMI you only need to enter your loan amount, interest rate to be charged and tenure of loan. The formula used by mortgage loan calculator is:

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 use mortgage loan calculator as it is very easy and time saving process and helps you in calculating your EMI in seconds.

Mortgage Loan Calculator Benefits

Mortgage loan EMI calculator has multiple benefits, which are listed below -

• Saves your time : You can easily calculate your EMIs immediately through mortgage loan EMI calculator which can save your time. You are required to input basic details like loan amount, interest rate and tenure to get the detailed schedule.
• Give accurate results : If you are doing manual calculations then there are higher chances of getting wrong results which can change your Mortgage loan EMI and this can delay your decision while taking loan against property. Hence, you are advised to use online EMI calculator for LAP to get correct results.
• Plan your finances : Loan against property calculator calculates your EMI and shows how much EMI amount is to be paid to the bank. Always opt for EMI that falls within your budget and reduces any potential distress on your finances in the future.
• Allows to evaluate multiple schedules : By mortgage loan EMI calculator, you can also check amortization schedule and EMIs for various combinations of loan tenures and interest rates and accordingly choose the EMIs that suit your repayment or servicing capabilities.

Amortization Schedule appearing in Loan against property Calculator

An amortization schedule is a data table that shows the calculation of gradual repayment of loan along with interest rate every month to pay off the loan.

An EMI is composed of principal and interest component. EMIs are equal installments you pay to repay your loan. For each month, an amortization table provides your loan balance, interest charges on your loan, and the amount of principal that you pay off.

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 early years, your principal repaid is very small and the outstanding loan amount continues to be high.

On an average, you repay back 6 -7 % of your loan in year 1 with average tenure of 10 years and not more than 40-45% of your Loan against property till year 5. So, if you take a loan of Rs. 10 lakh and you decide to prepay your loan at the end of five years, you will still need to pay back Rs. 6 Lakh or more to your bank. Hence, it is important to understand your amortization schedule before taking a loan.

Illustration: How to read an amortization schedule

Suppose you take a Property loan of Rs. 20 Lakh for 10 years for your business expenses at an interest rate of 8.50%. EMI calculated is Rs. 24,797 and total annual EMIs to be paid is Rs. 2.98 Lakh. The EMI schedule of your Property loan for next 10 years (from January 2017 to December 2027) 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 initial years, you repay a very small amount of your principal component.
• In the above illustration, on a Loan against property of Rs. 20 lakh, taken at the lowest interest rate of 8.50% , EMI is Rs. 24,797 and annual total of EMIs is Rs. 2.98 Lakh interest component is around 55% while principal component is around 45% in year 1 of disbursements. You repay back only 6.6% of the total principal despite paying 12 EMIs during first year.
• In year 10, interest component is around 4% while principal component is around 96%. Up to year 10, you have cumulatively repaid 100% of your total loan.

Loan against property Prepayment Calculator

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 is 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 property loan in the illustration below:

Suppose you take a loan of Rs. 10 Lakh for 5 years at an interest rate of 8.50%. Your EMI of the loan is Rs. 20,516 per month and annual total of EMI is Rs. 2.46 Lakh. This is how your original loan schedule looks like till Year 3. On loan amount of Rs. 10 Lakh, you make payment of Rs. 20,516 every month and annual payment of Rs. 2.46 Lakh. By the end of year 3, you have outstanding principal of Rs. 4.51 Lakh and you have to pay another 24 EMIs to fully pay down your loan. The original schedule of your loan till year 3, has been shown in the table below:

Now at the end of year 3, you have surplus amount of Rs. 2 Lakh 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

Option 1: Reduce your loan tenure and keep your EMI same

If you have Rs. 2 Lakh as surplus amount and decide to keep the EMI same and reduce the tenure, this is what will happen. At the end of 3 years, when you prepay an amount of Rs. 2 Lakh outstanding principal is reduced to Rs. 2.51 Lakh as comparison to Rs. 451,209 in your original schedule. As your loan outstanding reduces and you opt to reduce your loan tenure, at the end of 3 years you will pay only 49 EMIs compared to total 60 EMIs as planned in your original loan schedule. This means your loan tenure stands reduced by 11 months. Please refer to table below to understand the EMI calculations in case of a prepayment:

Option – 2 : Reduce your EMI and keep the loan tenure same

At the end of 3 years, when you prepay an amount of Rs. 2 Lakh outstanding principal is reduced to Rs. 2.51 Lakh as comparison to Rs. 4.51 Lakh in your original schedule. As your loan outstanding reduces and you opt to reduce EMI, your revised EMI stands at Rs. 11,418 compared to Rs. 20,516 earlier. Your remaining loan tenure remains unchanged at 24 months and you pay an EMI of Rs. 11,418 which is lower by Rs. 9,098 of your original loan amortization schedule. Please refer to table below to understand the EMI calculations in case of a prepayment under Option 2:

If you choose option 2 i.e. reduce your EMI then you can avail certain benefits like your monthly EMI amount will reduce then you can spend more over your standard of living and over day to day expenses. As your EMI reduces you pay lower interest in comparison to the original loan schedule. If you plan to prepay and continue paying same EMI over a shorter tenure can result in significantly lower interest amount on your Loan against property and hence, should be the preferred choice whenever possible.

Has RBI imposed a moratorium on payment of Loan Against Property EMI?

The RBI has announced on 27th March 2020 that all banks and other lenders like NBFC’s and Housing finance companies are permitted to allow their customers a moratorium in repayment of EMI’s for a period of upto three months. This means that borrowers may not pay any EMI for three months subject to bank approval. In such cases, the loan tenure may get extended. It is important to note that this delay in repayment of Loan Against Property EMI's will not be treated as default and will not have any negative impact on the borrower's credit score.

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