Why is it Important to Calculate Home Loan EMI?

Posted by arwindsharma on April 25th, 2018

Applying for a Home Loan helps you purchase your home of your own by giving you the funds you need up front, and lets you to repay the amount in the form of small, manageable chunks. However, taking a Home Loan in India is a major financial decision and one that you should make after thorough consideration of all aspects. This is why it is important that you calculate EMIs before you apply for a Home Loan. This will allow you to seek answers to several questions that you may have about the loan.

Here’s a look at the aspects it dwells light on.

Ascertain Monthly Outflow:

EMIs of a Home Loan add to your monthly expenses. Also, since your Home Loan usually involves a substantial amount, your EMIs could affect your monthly budget significantly. In such a situation, calculating your Home Loan’s EMIs in advance gives you a better idea of what your revised expenditure will be. It also allows you to take stock of your expenses, and see how much of your monthly income you have left to dedicate towards savings or cash reserves for emergencies. Depending on the results you get, you can adjust the principal amount and tenor to bring down the value of each EMI, if need be.

Plan for Repayment Efficiently:

When you calculate EMIs in advance, you will not only know how much your expenditure will increase by, but you will also be able to plan for repayment efficiently. This is because a Home Loan usually has a long tenor, and you must be consistent with payments throughout in order to repay the loan successfully. Noting down your EMIs can help you start preparing for repayment even before the loan is processed. You can set aside a portion of your income to do this, and decide if you need to tap into other sources of income to aid repayment. For example, when you get money gifts, bonuses at work, or earnings from selling items, and interest from your investments, you can set it aside to pay off your first few EMIs without straining your salary.

Ensure that you Choose the Right Loan and Lender:

Calculating the EMI gives you a realistic picture of how affordable the loan is. So, it is a great way to compare various loans before choosing one. This will allow you to identify the best lender for your Home Loan. Using a Home Loan EMI calculator or Home Loan interest calculator will help you do this with great ease. Besides this, also compare a lender’s additional fees and charges to arrive at a loan that is truly affordable. Sometimes, a low interest rate Home Loan is likely to come with higher hidden costs which can make your loan more expensive once you start making payments towards it.

A lender that offers affordable Home Loans without any hidden charges is Bajaj Finserv. In fact, apart from the low interest rate, you can make use of nil prepayment and foreclosure charges to make repayment even more easy and reasonable.

Learning How to Calculate EMIs

While calculating EMIs, it is important to follow the right formula, which is:

E = P x r x (1+r)^n/((1+r)^n – 1). Here ‘E’ represents your monthly EMI, ‘P’ stands for the principal amount borrowed, ‘R’ is the rate of interest and ‘N’ signifies the tenor.

Calculating this manually can be tiresome, but you can achieve the same results by using a Home Loan calculator or a Home Loan EMI calculator. You can use the sliders to adjust the principal, interest rate and tenor, and see the EMI that you have to pay. This will allow you to choose the most affordable loan, see how much you will spend on a monthly basis and plan for repayment accordingly.

So, don’t skip calculating EMIs. Carrying out this step adds more clarity to your loan borrowing experience and eliminates decisions based on guesswork.

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