Two of the foremost aspects you will need to consider when applying for a home loan are, of course, the loan amount and tenor. The sanction amount is one of the primary parameters reviewed when assessing your eligibility – lenders will try and derive if you can repay this sum given your current income, obligations, and financial standing.
The next parameter, naturally, is the tenor – over how long you choose to repay the borrowed sum. This plays a crucial role in your eligibility as the tenor affects your EMI; with a longer tenor, you could afford a higher loan amount given the lower EMI.
For instance, if you have approximately Rs.30,000 that you can dedicate towards your home loan EMI, you can either opt for a Rs.40-Lakh home loan and repay it over 25 years, in which case you pay Rs.30,082 as your EMI at an interest rate of 7.70% p.a. Or, you can opt for a Rs.30-Lakh home loan and repay it over 13 years, in which case you pay Rs.30,492 as EMI, given an interest of 7.70% p.a.
So, it is imperative you choose the right loan amount and tenor by assessing which loan terms would work best for you and your financial situation.
Use a Home Loan EMI Calculator
To make an informed decision, you will need to work out the home loan EMI in various scenarios, with different combinations of the loan amount and tenor. Home loan EMI calculation can be a complex task, especially if you do so manually. The formula is:
P * R * (1+R)^N / [(1+R)^N-1]
Here, ‘P’ represents the principal/the sum borrowed, ‘R’ represents the interest rate (monthly) at which you borrow the funds, and ‘N’ represents the tenor/the number of months over which you will repay the sum.
Before you proceed with the calculation, take care to convert your loan tenor into months and convert your annual interest rate into a monthly interest rate.
Alternatively, you can complete the calculation instantly with an online home loan EMI calculator, thereby getting a chance to review your possible home loan EMI in multiple combinations of the loan amount and tenor.
Several leading lenders offer online calculators, which are only a click away and free to use.
While manual calculations leave room for errors, online calculators are automated, which ensures they produce accurate, error-free results.
Where manual calculations can be time-consuming, online calculators offer instant results. You only need to enter the loan amount, tenor, and interest rate to get the EMI amount in a matter of seconds.
Compare which loan amount and tenor are right
Given how easily one can calculator their home loan EMI with an online calculator, the tool makes it possible for users to review the results for multiple combinations. You can thus compare the EMI amount for different loan amounts and tenors and, thus, pick a combination that is most to your financial situation.
Understand how the interest rate affects your EMI
Different lenders extend funding at varied interest rates. At present, while most lenders offer home loans starting at 8.10% p.a., one can avail of funds at interest rates as low as 7.70% if they compare their options. For instance, Bajaj Housing Finance Limited, a 100% subsidiary of Bajaj Finance Limited, offers home loans starting at 7.70%* p.a. for salaried and professional applicants.
Thus, it is essential you compare offers from various lenders before you apply. What’s more, as a prospective borrower, one should understand how their interest rate affects their EMI. For instance, if you borrow Rs.50 Lakh over a tenor of 15 years, you pay Rs.48,362 as EMI, given an interest rate of 8.20%. Your total interest outflow is Rs.37.05 Lakh.
On the other hand, say your interest rate is 7.70%. You pay Rs.46,921 as EMI if you borrow Rs.50 Lakh over a tenor of 15 years. And your total interest outflow is only Rs.34.46 Lakh. Thus, with a difference of 0.50%, your total interest outflow increases by Rs.2.59 Lakh.
When you use an online home loan EMI calculator, you can not only assess which loan amount and tenor will ensure comfortable repayment but also get insight into how much you stand to save with a lower interest rate.
A home loan is a substantial undertaking that can affect your finances for years to come. Thus, make sure you research all options in the market before proceeding to apply. With the right lender, you can avail of funds to purchase or renovate a property, as well as save on taxes.
If you already have a home loan but would like to switch to a new lender for a more competitive offer, avail of a home loan balance transfer. Transfer the balance amount on your home loan to interest rates starting as low as 7.75%* p.a. for salaried and professional applicants, with leading lenders such as Bajaj Housing Finance Limited.
*Terms and conditions apply