Having your own home is something many people hope for. But buying a house can be tough if you don’t have enough money. There are many costs to consider, like the down payment, decorating, utilities, and furniture. So, it’s important to think about everything.
One easy way to arrange funds to buy a home is to apply for a Home Loan. It helps everyone, be it salaried or self-employed, buy a residential property. Borrowers can repay the sum in easy monthly instalments (EMI) at the applicable interest rate.
But getting a Home Loan requires proper planning and managing your cash flows to pay the EMIs on time, and that’s where a Home Loan EMI calculator can help.
Understanding Home Loan EMI Calculator
A Home Loan EMI Calculator is a free-to-use online tool, available on the websites of top financial institutions like ICICI Bank. It helps borrowers determine the Equated Monthly instalments they must pay as a repayment for Home Loans. The Home Loan Calculator also helps the borrowers know how much interest they will be paying, depending on the inputs entered by them.
The loan calculator also helps borrowers determine the total amount they will pay for their Home Loans, including principal and interest. It helps them manage their finances better.
Components of Home Loan EMI
An EMI has two components: principal and interest. The principal is the amount of money borrowed, while the interest is the amount paid on that borrowed amount. The interest component is usually higher at the beginning of the loan tenure and decreases as the loan progresses. This is because the interest is calculated on the principal amount at the start of repayment.
The principal component of an EMI is directly proportional to the amount of money borrowed. This means that the higher the principal, the higher the EMI. Lenders determine interest rates and are influenced by factors like inflation, fiscal deficit, loan tenure, and the borrower’s CIBIL score.
Benefits of EMI calculator
An EMI calculator can help you save time and effort by providing accurate results for your Home Loan EMIs. Here are the benefits of the EMI calculator:
- Quick calculations: Calculating your loan using a pen and paper can take hours. However, the Home Loan Calculator allows you to complete these calculations with a single click. With the online calculator, you will not have to double-check your figures constantly.
- Simple & accurate: Numbers are your friend in Home Loan planning. Manual computations are prone to inaccuracy. The Home Loan EMI Calculator eliminates this difficulty by consistently providing accurate results.
- Compare various offers: Customers may use a loan calculator to compare loan options from several lending institutions. The results reflect the entire loan cost together with each EMI. This can assist applicants in narrowing down their alternatives and selecting a loan that meets their needs.
- Safe & Secure: Using an online Home Loan EMI Calculator eliminates security concerns because you do not have to expose your identity, making it secure.
- Better financial planning: The Home Loan Calculator can help you avoid financial difficulties in the future. Knowing your Home Loan EMIs before applying might help you manage your budget more effectively and borrow an amount that meets your needs.
Using a Home Loan EMI calculator results in your budget
An EMI calculator uses the formula EMI = P x R x (1+R)^N / ((1+R)^N-1) to calculate your monthly instalments. In this formula, P is the principal loan amount, R is the monthly interest rate, and N is the loan tenure in months.
The lower the amount you borrow, the lower the EMI. This is because the reducing balance method is used, where the principal amount decreases with each payment, resulting in a lower interest payment over time. The longer your loan tenure, the lower the EMI. You can alter these values in the EMI calculator per your loan details or preference.
Adjusting your Budget to Accommodate the EMI
Borrowers must review their monthly expenses to adjust the budget to accommodate the EMIs. Understanding cash inflows and outflows helps determine financial obligations. Applicants must compare the EMIs of various loan plans to understand the maximum EMI amount they can afford without straining their finances.
Financial experts say the EMIs should not exceed 40% of your monthly income. Borrowers can use this guideline to assess their affordability and ensure the EMI amount fits within this range. Users must also set up an emergency fund to anticipate unexpected expenses or changes in their financial patterns. It ensures they can repay the loan without defaulting.
Financial circumstances can change over time, so it’s essential to review your budget and regularly adjust as needed. Monitor your expenses, track your progress towards your financial goals, and reassess your budget periodically to ensure it remains realistic and effective in accommodating your Home Loan EMI.
Balancing other Expenses and Savings
To ensure the smooth functioning of loan repayment, borrowers must balance their expenses and savings to have sufficient funds to repay the loan amount. They must prioritise essential expenses such as groceries, insurance, debt repayment, utilities, etc., which are non-negotiable and necessary basic needs.
After covering essential expenses, allocate funds specifically for your Home Loan’s EMI. This should be treated as a top priority, as timely repayment is necessary to maintain a good credit score and avoid default. Set aside the required monthly amount to meet your loan obligations comfortably.
Conclusion
Owning a home is a significant milestone in people’s lives. Most people save money to invest in real estate or build a house. Housing loans have become vital, fuelling millions of households nationwide.
However, before applying for a Home Loan, you should assess your spending and prepare accordingly. The Home Loan EMI Calculator is an excellent resource in this regard. It helps calculate monthly loan instalments and presents an end-to-end payback schedule.
