EMI refers to a certain amount that a borrower needs to pay the lender as a monthly installment for the repayment of loan over a specific period of time. As a reference for details of the repayment of home loan, amortization schedule is used. The EMI is the amount that is derived from the principal amount of loan along with the interest accrued on the loan as per the rate of interest rate applicable on/ agreed upon the loan amount.
Home loan is generally a huge amount that has a significant effect on the financial wellbeing of an individual and that too for a longer term, as home loans are usually granted for 20 to 25 years. Hence, there may be a big impact of a heavy EMI on the financial condition of the borrower and it is the primary thing the borrower takes into the consideration before applying for a home loan. To understand more about the loan and EMI, amortization schedule is used.
E = P x r x (1+r) ^n/ ((1+r) ^n – 1)
Where, P is the principal amount to be borrowed, r is the rate of interest provided on a monthly basis. The interest rate is generally provided annually which can be converted into monthly basis by using the formula, r= (annual interest/12) x 100.
This formula given above is a very basic and does not take into consideration any processing fee, other charges or amount disbursed, if any. It is one of the important and useful features of EMI calculator for home loans that it is customizable as per individual requirements and limitations, which can be done even before the application of home loan.
Hence, one can substitute various combinations of tenures and interest rates applicable in order to get the best suitable schedule. The amortization schedule and the EMI calculated can help borrower to be more prepared with the individual specific requirements.
Do check our home loan eligibility calculator for knowing your loan eligibility.