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Wondering How Your Home Loan EMIs Get Calculated? Know Here!

To buy a house is a dream of many, and an expensive one at that. Real estate prices are soaring, because of which most people can only afford houses with the help of home loans. Now, while home loans do provide the required funds, it is also essential to focus on whether you are capable of repaying the loan’s monthly instalments on time. This is something that even lenders calculate, which is why it is imperative that you make sure to apply for a home loan plan that is affordable.

In order to know this, you will need to have a basic understanding of how the home loan EMI payments are being calculated. These instalments are based on three major components, which are:

  • Loan amount

This is the principal amount that the lender is offering you for the property purchase. The loan amount depends on numerous factors that the lender verifies, such as your bank statements, income, age, credit score, and so on. After the verification is complete, the lender will decide the appropriate loan amount to be sanctioned. If you are not satisfied with the loan amount that the lender approves, you can keep looking for other loan plans offering a better amount.

  • Repayment tenure

The repayment tenure is the duration given by the lender in which you have to clear any outstanding debt for the home loan. Since this loan involves a large amount, lenders usually provide long tenures, some lasting up to 20 years. Now, this does not mean that you have to take the full tenure. You can take a shorter loan tenure if you are confident of clearing it sooner. Now, most borrowers prefer repaying the housing loan to a long tenure. This is because the EMIs comprise smaller amounts, which is easier to pay off. However, choosing a shorter tenure, even though the EMIs would be larger, is a better option if you are looking to save money on the interest added with each instalment.

  • Interest rate

Any loan that a lender provides comes with an interest rate. This rate can change as per the lender’s terms and conditions and is also influenced by the borrower’s profile. Since home loans are usually long-term, even a slight difference in home loan interest rates can result in significant changes in the overall cost of the loan. This is why it is very important to focus on the interest rate that is being offered by the lender.

Therefore, these are three components that decide the monthly instalments of the loan. It is best to make use of a home loan EMI calculator to find out whether you can afford a particular loan plan. You can try different variations by making changes in these three fields to arrive at a suitable EMI payment. The home loan EMI calculator is made available on most lenders’ websites, so, do use it before going ahead and applying for the loan.

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