Here is how you can calculate the EMI you will have to pay on a home loan.
Decide the loan amount
To get a rough idea about your home loan eligibility, start with your total annual income. You can typically get a home loan of around 5 times your net annual income. This multiple may vary with different lenders and may depend upon various other factors like nature of profession and overall repayment capacity.
Moreover, the loan amount also depends upon the value of the property. Typically, the maximum home loan amount is 90% of the property value; many lenders, however, offer only 80% of the property value as home loan. Higher the loan amount, a lower percentage of the value of the property is offered as home loan.
Even though the final loan amount will depend on factors such as value of the property, interest rate and tenure of the loan, you can start with an estimated loan amount.
Find the right tenure of your loan
Usually home loans are long-term loans, where some can even go up to 30 years. Do keep in mind that the longer the tenure of the home loan, higher will be the interest amount you will have to pay on the loan.
Generally, lenders allow a tenure where the repayment of the loan is completed by the time borrower reaches the age of 60 years. So, if you are 30 years old you can get a loan tenure of 30 years, however, if you are 45 years old, you can get a maximum tenure of 15 years.
A typical limit which is applied by lenders on the EMI amount is that the total EMIs of all the loans put together by the borrower should not be more than 50% of his/her monthly income. If you are already paying EMIs on existing loans, then the maximum EMI of your new loan is reduced by a similar amount within this 50% limit.
So, if the EMI for a desired loan amount goes above this limit, the lender either reduces the loan amount or increases the tenure of the loan if the borrower is eligible for a longer tenure. However, as the monthly income increases, the lender will usually give some relaxation in this 50% limit.
Get the best interest rate
While all borrowers would like to get the lowest interest rate offered on home loans, this is not feasible on account of many factors. Each lender has its own rules regarding the kind of properties and borrower segment it will lend. For instance, many lenders give their best interest rate to salaried customers while some offer their best rates to borrowers with high credit scores. Female borrowers are also given special interest rates by many lenders.
Also read:
Home loan interest rates linked to repo rate
How to calculate loan EMI
Online calculators: There are number of online calculators that can help you easily calculate your home loan EMI. These can be found on aggregator portals and websites of lenders like banks, NBFCs and housing finance companies. You can try ET Wealth’s online home loan calculator which also gives you the option to download the detailed monthly amortisation schedule of your loan at https://economictimes.indiatimes.com/wealth/calculators/home-loan-calculator
Using MS Excel formula: If you want to do your own calculations on MS Excel, you can use the following formula to calculate the EMI:
EMI = [P x (R/100) x (1+R/100) ^n] / [(1+R/100)^ n-1]
Here, P= Principal loan amount, R= Rate of interest per month, n= Number of monthly instalments.
An example:
Assuming, P= Rs 30 lakh, R= 9 percent per annum= 9/12= .75 per cent per month, N= 180 months
EMI = ((300000*.75 /100*(1+.75 /100) ^180/((1+.75 /100)^180-1))) = Rs 30,428
