Friday, May 7, 2021

EMI - A Major Consideration in A Home Loan

Home Loan

Home loan EMI is the cost of a home loan that the recipient pays every month to repay his debt throughout the loan tenure.


The formula used in a Home Loan EMI Calculator = [P x R x (1+R)^N]/[(1+R)^N-1].


Where, E: Equated Monthly Installment, P: Principal or loan amount, r: Interest rate per month (the annual interest rate is divided by 12 to get the monthly interest rate), and n: monthly instalments or loan tenure in months select. All banks and NBFC widely accept the above-stated formula to calculate home loan EMI. 


Home loans EMI calculators possess certain advantages that add to the ease and understanding of the applicants beforehand:


  • Easy process: EMI calculation is an easy process with the utilisation of the correct factors of evaluation.


  • Break-up of financial cost: An EMI calculator is helpful to evaluate the price of a loan at the end of the whole tenure.


  • Convenient for comparison: As an EMI calculator provides the loan's actual cost, it makes it easier to compare the loan provided by different loan providers.


  • Choosing the correct loan tenure: Knowing your EMI will also assist you in selecting the suitable loan tenure. You can choose a shorter borrowing term and pay off the loan sooner if you can afford a higher EMI. Otherwise, you will pay a more manageable EMI and stretch the duration of your loan.


  • Aids in the verification of data: You should check the repayment plan provided by a bank when arranging a housing loan contract. You should double-check this using the repayment table info from the calculator. Bear in mind that the figures can vary from time to time. This is because lenders may factor in other fees when calculating your EMI.


  • Aids in debt management: You may have any spare funds to make prepayments before paying your EMIs. The EMI calculator of home loan can help you go over your finances again and see if prepayments can help you pay off the loan before the term expires.


The home loan EMI value is a significant consideration in a home loan as it is the outcome of all the factors of a home loan various public as well as private banks affected by these factors, one of the premier public sector home loan scheme is PNB Home Loan, the aspect can be discussed here.


The principal is the amount you borrow from the lender at the start of the loan. Your EMI is precisely proportional to it. The EMI rises as the debt number increases.


The interest rate is the expenditure of the loan. In a nutshell, it displays the amount of your loan. It varies from one bank to bank. The EMI will be higher if the interest rate is higher. Finding a lender with the lowest interest rates will assist you in reducing your EMIs. The lower the interest rate, the less your loan would pay overall.


Tenure, or the duration of the loan, refers to how long it takes you to repay the money you borrowed. Your EMI is inversely proportional to the length of your loan. The lower your EMI, the longer the loan term. The size of your loan is determined by your age at the time of borrowing and your anticipated retirement age. In India, the longest loan term available is 30 years.


The processing charge is either a percentage of the loan balance or a set minimum or maximum fee assessed by the lender. It's the amount charged by the bank for processing your loan application. This number can be found in your loan papers. At least a portion of this fee will be due before the invoice is submitted. And if your loan is denied, your lender will not repay this fee.


Making prepayments on your home loan will help you reduce the amount owed. As a result, the interest charges are reduced. If you prefer to keep the tenure stable, both lead to lowering the EMIs.

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