How to calculate interest on a home loan effectively

How to calculate interest on a home loan effectively

The Reserve Bank of India’s decision to lower the policy rates brought a positive change in India’s home loan market. It encouraged prospective homebuyers to carry on with their plan of investing in real estate at a comparatively lower rate of interest. However, before moving ahead with this plan, financial planning is imperative, as it allows individuals to manage their debt efficiently.

In this regard, individuals should know how to calculate interest on a home loan to avoid future hiccups.

Know how to calculate interest on a home loan

Here are the ways of computing interest on housing loans –

Manual calculations

For manual calculation of housing loans, individuals can apply the following formula –

  • EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]

Here ‘P’ stands for the principal amount

‘R’ stands for the rate of interest

‘N’ stands for the number of months or loan tenor

Here is an example to demonstrate this calculation –

For instance, you have a home loan of Rs.50 lakh against an interest rate of 12% for a tenor of 10 years. In that case the calculation will be –

P = Rs.50 lakh, R = 12/100/12, which is 0.01 (when converted into months), N = 10 years/120 months

EMI = [5000000 x 0.01 x (1+0.01)^120] / [(1+0.01)^120-1]

EMI = Rs.71,735

Now, if you multiply this EMI amount with loan tenor, you will find the total outstanding, which will be: (Rs.71,735X120 months) = Rs.86,08,200. Hence, the total interest payable will be Rs.36,08,200

Online calculations

Besides the manual calculation, one can also find the total interest payable using an online EMI calculator. This online device streamlines the calculation process and saves time. Here are the steps to use this device and know how to calculate interest on a home loan efficiently –

Step 1: Go to the website containing this online device

Step 2: Enter the related loan values, i.e. principal amount, loan tenor and interest rate

Step 3: You will receive the total interest payable and total loan outstanding instantly

Additionally, intending borrowers can adjust the values and find a suitable loan offer as per their repayment capacity. Moreover, using this online device also brings a set of benefits.

Top 5 benefits of using an EMI calculator

Online devices like these are easy to use and include no complicated procedures. Here are the other notable advantages of using a home loan EMI calculator –

  1. Prompt and accurate results

Since manual calculations are prone to mistakes, taking the assistance of these online devices will eradicate this issue. They will generate accurate results depending on the data provided by an individual.

Additionally, manual calculations are also lengthy and time-taking. Since computing EMIs involves multiple steps, it takes time to find the right answer. Now, one can bypass this delay by using an online device like this. They show results within seconds of providing inputs.

  1. Customised results

Another notable advantage of using an online device like this is its ability to produce customised results. Here, individuals can input different values and find a loan offer that suits their requirements and repayment capacity.

  1. Access to a loan amortisation schedule

Online devices like these allow access to a loan amortisation schedule. This list entails a detailed breakup of one’s EMI payment and how it progresses throughout the tenor. It displays how interest and principal payment changes over the period.

Access to this schedule can help prospective borrowers with their loan repayment. They can now plan their part-payments accordingly and avoid complications.

  1. Perform comparison

One of the notable advantages of using this online device is that it allows potential borrowers to compare multiple loan offers. Here individuals can alter the loan details from different lenders and then make a decision accordingly.

  1. Free to use

Among the other perks this online tool offers, not levying any charges is one of the primary ones. These tools are available on different websites and require no login or paying any additional fees to use them. Also, individuals can use them as many times as they want.

Apart from these above-mentioned advantages, taking assistance of this online device helps in managing a home loan better. Individuals can now use them to learn about their monthly instalments beforehand and plan their finances accordingly. Hence, managing the EMIs becomes easy.

Besides knowing the EMIs, one should also learn how to apply for housing loan in India .

Know the application process of a home loan

Step 1: Visit the website of a preferred lender

Step 2: Fill out the loan application form with relevant details

Step 3: After the initial approval, submit required documents

Step 4: After property and document verification, individuals will receive the loan amount in due time

However, borrowers can avoid the hassle of a loan application by opting for a lender offering pre-approved offers. These offers streamline the loan application and save time. Such offers are applicable on financial products, such as home loans, loans against property, etc. Borrowers can check their pre-approved offers by submitting their essential contact details.

Read more: Top Five Factors That Can Help You Secure a Low Interest Home Loan

Knowing how to calculate interest on a home loan allow individuals to plan their borrowing and repayment, helping them reduce future complications.