Until a few decades ago, buying a home meant saving money for one’s entire life and then using a big amount of savings to buy a home. However. over the last few years, the scenario has changed. Today, most people do not wait to save the entire cost of a home. Instead. they avail themselves of a home loan. Home loans are a type of secured financing. These loans draw a lower rate of interest as compared to a few other loans and come with a long repayment tenor, making them easy to repay.
Even though home loans are an effective and smart way of buying a home, the loans go on for years and if availed of without proper planning. They might easily become burdensome. It is thus recommended to plan finances in advance for your homebuying journey. To help you plan this in a more hassle-free manner, the home loan EMI calculator comes as a handy tool. Let us try to learn more about this calculator.
What is a Home Loan EMI Calculator?
The home loan EMI calculator is an online tool that borrowers can use to calculate the net payable EMI for their desired loan amount. This home loan calculator calculates these EMIs based on three values: home loan amount home loan tenor. And the applicable rate of interest.
Home loan buyers can calculate their EMIs for a home loan manually using this formula:
EMI = [P x R x (1+R) ^n] / [(1+R)^ n-1]
Here,
P refers to the principal amount or the loan value,
R refers to the rate of interest being offered,
And n is the loan tenor in months.
Looking at the EMI calculation formula, it is easy to understand that calculating home loan EMIs manually can be a complex task with ample room for errors. However, since home loans are a huge commitment, one must never leave any room for errors. Even a small mistake while calculating EMIs may compel one to shell out some extra amount over the tenor of their loan. Therefore, borrowers can use a home loan EMI calculator to avoid errors in calculations and plan repayment and other things. Let us now look at the benefits of an interest rate calculator and how borrowers can use this calculator to their best advantage.
How to Effectively Use an Interest Rate Calculator for Home Loan
Here’s how home loan borrowers can use an interest rate calculator to their best advantage.
- Borrowers can use the home loan calculator to figure out the right combination of loan tenor and loan value for them. When it comes to home loans, borrowers do not have much control over the interest rate they will get. Lenders decide the rate of interest based on a borrower’s credit profile, debt-to-income ratio, age and income, and other things. Therefore, borrowers can use the calculator to try out different combinations of loan tenor and loan value until they arrive at an EMI value that they can comfortably pay.
- Home loan borrowers may want to close their loan before the agreed loan tenure. Doing this not only helps them become debt-free sooner but also saves money in terms of their total interest outgo. Prepayment refers to the process of making lumpsum payments towards one’s home loan principal, with the aim of either reducing one’s loan tenor or EMIs. Foreclosure refers to the process of paying the entire amount due and closing one’s loan account before the agreed time frame. Both prepayment and foreclosure prove beneficial when availed of at the right time, i.e., during the early years of one’s loan repayment tenor when the interest component of the loan is quite high. The home loan interest rate calculator not only tells borrowers their EMIs but also gives them an amortization schedule, and by looking at this schedule, borrowers can easily figure out the best time for loan prepayment or foreclosure.
- Home loan borrowers must try their best never to miss their loan EMI. Missing an EMI not only causes a person’s credit score to go down but also leads to the borrower incurring a penalty. This penalty gets added to one’s loan EMIs, which further increases the cost of borrowing the loan. Borrowers must, therefore borrow after careful planning. They should borrow only what they can comfortably repay by calculating EMI beforehand. This helps avoid late fees and penalties and repay one’s loan as planned.
- Lastly, home loan borrowers can use the home loan EMI calculator to compare offers from different lenders. Home loan applicants are advised to reach out to as many lenders as possible. This helps borrowers get a good idea of the best home loan interest rates and other terms and conditions they can get on their loan. Further, this may also help borrowers negotiate with lenders and avail of the lowest home loan interest rate. Once applicants have offers from different lenders, they can use the home loan EMI calculator to compare these offers and avail themselves of the best one. Since the home loan EMI calculator is quick and accurate, one can use this calculator as many times as one wants and also use it to compare as many offers as possible.
So, if you are planning to avail yourself of a home loan, keep in mind that home loans are a long-term commitment, and your home loan EMIs may go on for a few decades. Therefore, it is crucial that you not only borrow money after proper deliberation and planning but also try and avail yourself of the best loan offer that you can easily repay. A home loan EMI calculator can help you plan your EMIs more easily. So, use this free tool to your best benefit.
