Why it is critical to calculate EMI before applying for a Home Loan

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Each one of us aspires to own a home. Our psyche is such that owning a home is tantamount to having arrived in life. In India, ever since Independence few people have been fortunate enough to build their own homes. But, in recent times the situation is much better with the economy doing well and a burgeoning middle class is able to translate their aspirations of building their own homes into reality.

Most people build or buy their homes by taking a home loan from financial institutions such as public sector and private sector banks or housing finance corporations. These institutions extend home loans for long tenures at low-interest rates. Typically, the borrowers mortgage their homes to the financial institutions as security until the loan is repaid in full. In such a scenario it is important for you to carefully consider all aspects of home ownership before you commit to a home loan. The most important obligation on the part of borrowers is to repay the home loan in full to the lender and discharge the mortgage to repossess ownership.

Taking a home loan is a major commitment for borrowers. You have to find sources of income to repay the loan. To help home owners repay the loan, financial institutions allow repayment in the form of equated monthly instalments (EMI).

The idea is simple. You have to set aside from their monthly income an amount equal to the EMI to pay to the lenders. Thus, EMI is an important factor to consider when taking a home loan. In order to help borrowers calculate EMI easily, lenders provide a home loan EMI calculator. The EMI calculator takes into account three variables – loan amount, home loan interest rate and tenure of the loan to calculate the EMI. Through this calculator, borrowers can input different values and see how EMI changes.

For instance, if you input the following parameters to the home loan EMI calculator

  • Loan amount – Rs 25,00,000/-
  • Tenure – 240 months
  • Home loan interest rate – 8 percent per annum

Then the EMI calculator shows an EMI of Rs 20,994.65. This means that borrowers pay this EMI to the lender every month for 240 months. Now, assuming that the borrowers can afford to pay more EMI, then by changing the tenure to 180 months the EMI calculator shows the new EMI of Rs 23,986.87. In this option, borrowers can repay the loan 60 months earlier than in the first case. Thus, using the EMI calculator borrowers can input different values into the calculator and arrive at various EMI options. With this information on EMI, borrowers can make objective decisions on the loan amount, interest rate and tenure.

Financial institutions such as Tata Capital support the home building activity by extending home loans to borrowers. In order to help them decide on the EMI they are capable of paying, borrowers should use the home loan EMI calculator provided by Tata Capital.

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