Be it buying a home and car or funding overseas education, you can easily manage the expenses with the help of bank loans. However, the most important thing related to loans is the EMI – equated monthly installment.
It is basically the small monthly amount paid to the bank for repaying the loan we opted. EMP payments consist of both the principal amount and the loan amount. The interest is the small portion of the EMI payment paid in the initial stages. The portion of interest repayment keeps reducing as we progress towards the loan tenure.
How is Home Loan EMI Calculated?
The official mathematical formula for calculating regular home loan EMI is given below:
EMI = P × r × (1 + r)n/((1 + r)n – 1)
In this formula, P = Loan amount, n = tenure in number of months and r = interest rate.
For example, if the principal loan amount is INR 1 lakh, monthly tenure is 12 months and the interest rate is 10%.
EMI – 100000 x 10 x (1 + 10) 12/ (1 + 10) 12 – 1) = 8792
Based on the aforementioned three factors that govern the EMI payments, this monthly instalment is directly proportional to the total loan amount, whereas the interest rates are inversely proportional to the tenure of the loan. The higher the principal loan amount or higher the interest rate, the higher will be the EMI payment. It is also advised to know what is home loan noc if you are not aware of this, you must ask your real estate agent or loan advisor.
Additional read: A Quick Guide To Home Loan Sanctioning and Disbursement