If you are looking to purchase a house on loan, you would already be doing a lot of groundwork. Getting in touch with multiple vendors to understand their offers, arranging money for down payment, verifying the short-listed properties, etc.
But if you are like most people, your biggest worry would be about how you will manage to pay your EMIs once the loan starts. Ofcourse, you have your monthly salary or income to take care of that. But having a significant part of your monthly income diverted every month into loan account can be stressful.
This is the reason experts suggest that you should not go overboard with taking a home loan. Only borrow what you can comfortably pay for years. This is the reason why you need to understand how lenders calculate your EMIs.
Your EMI depends on following 3 factors:
- Loan amount
- Loan tenure
- Interest rate
An EMI consists of two components – principal repayment + interest payment. Each and every EMI goes towards repayment of a part of the principal amount and also towards paying interest due on the outstanding loan amount. During the initial part of the loan tenure, a large part of EMI goes towards interest payment. But as the loan progresses, the EMIs contribute more towards repayment of principal amount.
You can use spreadsheets or excel to calculate your EMIs. Or if you want an easier way out, you can try the online home loan EMI calculator.
It only requires 3 inputs from you – home loan amount, tenor and rate. Once these are provided, it will quickly tell you the loan EMI, total interest payable (over loan tenor) and also the total amount that you will pay over the loan tenor.
You can change interest rate and tenor to see how your EMI and total interest outgo are affected by both factors. So make sure to understand the impact of interest rates and tenor on your EMIs before you finally take a loan