How to Calculate your Home Loan EMI

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“Housing sales are estimated to rise this year to 1.92 lakh units in India's top seven cities on expectations of a cut in interest rate and stable prices, according to property consultant JLL India,” said an article published in NDTV Profit in January 2015.Buying a home is a sought after lifetime investment option in India but the money involved is huge, which makes it all the more imperative to consider home loan options and terms. Procuring the desired loan amount with a suitable interest rate is a task in itself, which in turn depends upon the amount repayable every month.

Factors Determining the EMI

EMI or equal monthly installments refer to the amount of money paid by the borrower to the lender each month to clear the outstanding loan amount in a given period of time. A home loan EMI calculator makes the job easier by helping you look through the various options available at a fixed rate of interest by changing the loan amount and loan tenure. The four major factors determining the EMI of a loan are:

1. Principal Amount – The principal amount is the actual loan amount borrowed by you.
2. Rate of Interest–This is undoubtedly the most important factor on which the EMI is calculated. It is the rate at which the borrower takes money from the lending company.  The EMI for the same principal amount differs if the interest rate charged on it is changed. The higher the rate of interest, the higher will be the EMI payable. There are basically two types of interest rates: fixed and floating. A fixed rate, as the name suggests, remains the same during the tenure of the loan, while a floating interest rate varies according to market fluctuations. While calculating the EMI using a calculator, you can change the tenure and loan amount according to your wish but the rate of interest is decided upon by the lending company.
3. Loan Tenure – This refers to the tenure for which the loan amount has been taken. Longer the duration of the tenure, lesser will be the monthly EMI.
4. Method Of Computation – The method of computation adopted also impacts the value of the EMI. There are basically three types of methods, annual reducing method, monthly reducing loans and daily reducing loans.

In case of a Step-Up loan, the monthly payments increase gradually with increase in the borrower’s salary. The change is made twice during the loan tenure. On other hand, in case of a step-down EMI, the amount gradually decreases with increase in the number of payments made. It is essential to note that a home loan EMI calculator does not take into account processing and other charges, which may be applicable according to the policy of the lending institution. Therefore, it is advisable to go through all the terms and conditions carefully before signing an agreement.