Here's How a Home Loan EMI Calculator Works

Before applying for a home loan, individuals need to check if the instalment amount is within their repayment capacities. It will reduce the risk of defaulting on repayment. A home loan EMI calculator can be handy in such cases.

Multiple lenders offer housing loans against different interest rates and other associated charges. Using the online calculator will help borrowers understand and differentiate among all such offers. Choosing the right lender will thus become easy after checking the results displayed by the EMI calculator.

There are several related benefits of the home loan calculator as elaborated in the following sections.

What is a Home Loan Calculator

It is an online tool that can help borrowers determine their repayment period according to their financial capacity. This virtual calculator can be found on the websites of most lending institutions. It helps customers to opt for the right repayment tenure and loan amount.

In case, the calculated EMI amount is not within the affordable range for a borrower, he/she can reduce the loan amount or increase the tenure. This will reduce the instalment amount. However, an extended tenure increases the total cost of the loan as interest has to be paid for a longer period of time.

How Does the Home Loan Calculator Function

The home loan EMI calculator works on the mathematical formula to calculate the instalment amount, as mentioned below:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

In this formula, 'P' refers to the borrowed amount, 'N' indicates the tenure of the loan, and 'R' is the applicable housing loan interest rate.

Individuals can also use this EMI calculation formula manually to determine the instalment amount. However, the process is time-consuming, and it involves the risk of committing errors. With the online calculator, the chances of errors are nil and results are also instantaneous.

How to Use an Online Home Loan Calculator

Use the home loan EMI calculator following the below-mentioned steps:

Step 1: Access the calculator from the website of any lending institution.

Step 2: Enter the loan amount, interest rate charged by your preferred lender, and the preferred repayment period.
The calculator will compute and display the accurate results within an instant including the EMI amount, total interest payable, and the total cost of loan against a particular tenure. One can then adjust the tenure to reach a figure that he/she can comfortably repay.

Apart from the above advantage, there are certain other benefits of using the EMI calculator.

Benefits of Using a Home Loan Calculator

Following are some of the advantages of using the home loan EMI calculator:

Determining a suitable tenure

Intending borrowers can understand the repayment period they should opt for which will not strain their finances. Once the calculator displays the results against a specific tenure, it can be easily reduced or increased to adjust the EMI amount. This simple process will help them decide on a repayment period within which the home loan instalment amount is comfortably payable.

Knowing the amortisation schedule

Individuals can also generate the amortisation schedule of their repayment. This table gives the breakdown of every instalment into its components, i.e., interest and principal amounts. It can help them understand both the paid and outstanding principal and interest amount separately.

Comparing different loan offers

Individuals can know the overall borrowing cost of a home loan from the results generated by this calculator. It can help individuals to compare different loan offers from multiple lenders and understand which one will be the most cost-effective. This way, they can reduce their cost of borrowing.

Avoiding any impact on CIBIL score

Knowing the EMI amount in advance will let borrowers repay the loan comfortably. This will ensure the CIBIL score of such borrowers does not go down which will be the case if they fail to repay on time.

CIBIL score is an essential parameter reviewed by lenders while sanctioning loans. A poor score will lead to the rejection of loan applications. Hence, it is essential to pay ample heed on maintaining the score and an EMI calculator will be helpful thus.

Online home loan calculators are free and one can use them as many times as required. Almost every lending institution offers an online home loan EMI calculator for potential borrowers.

Using this calculator, intending borrowers can know the instalment amount in advance and make a proper financial plan to repay it. In addition, it can help them identify a loan offer that can reduce the total cost of borrowing to a considerable extent. It is thus, one of the must-use tools for all aspiring home loan applicants.