If you have decided to fulfill the most cherished dream of your life, you need a loan. When people think about a housing or home loan, the first thing that comes to their mind is the EMI or Equated Monthly Instalment. EMI comprises of two things – principal and interest.

Knowing the principal and interest of a housing loan is important because it helps you plan your loan repayments and the amount. It also helps you to claim tax benefits. 

Section 80C of the Indian Income Tax Act allows you to save up to INR 1.5 lac every year for principal repayment of a home loan. Section 24 enables you to save taxes of up to INR 2 lac on the interest component. A house loan EMI calculator makes the task simpler. You can enter details like housing loan amount, interest rate, and loan term and get the loan amortization table, which contains the details of principal and interest payable. Hence, you can use the house loan EMI calculator to get information about the interest payable, total amount payable, and the EMI.

When you plan the loan based on your requirement and tax benefits, you can choose the right loan amount. Read on to know how a lender calculates a housing loan’s EMI by factoring in the interest rate. 

The Method of Home Loan EMI Calculation

To know the home loan EMI, you have to enter the following details in a house loan EMI calculator:

  1. Principal – Principal refers to the total amount you wish to avail as a loan from the lender. The higher the principal, the more EMI you will need to pay.
  2. Interest Rate – Housing loan interest rates depend on RBI policy rates, the lender’s financial status, and various macroeconomic factors. The higher the interest rate, the more EMI you will pay.
  3. Tenure or Term – The tenure is the maximum duration of the loan when you need to repay. Generally, the maximum term of a home loan is thirty (30) years. The higher term you choose, the lesser will be the EMIs.

How is EMI Calculated?

 

As mentioned earlier, the EMI has two components – principal and interest. If your loan term is twenty years, the interest portion will be more than the EMI principal for the first ten years. As the interest component reduce, you can start paying the principal. Lenders offer several options to repay – cash deposit at the branch, ECS (electronic clearing system), or bank transfer. Housing loan interest rate plays a major role in determining the EMI amount.

What is the Best Way to Reduce EMIs?

While it is true that housing loan interest rates are much lower than other loans, the repayments can still seem painful after a while. A better way is to reduce your EMIs if you can. The best way to reduce your EMI is by prepaying a part of the principal during the initial years of the loan term. During the initial years, the lender uses your EMI to settle the interest cost. However, the principal remains the same. By prepaying the principal in part, you will reduce the principal outstanding, which will bring down the EMIs. You can use a house loan EMI calculator to calculate how much you can save by paying early.

Conclusion

A house loan EMI calculator not only makes it easy for you to decode the housing loan interest rates but also decide the repayment plan in advance

Knowing the principal and interest of a housing loan is important because it helps you plan your loan repayments and the amount. It also helps you to claim tax benefits. 

Section 80C of the Indian Income Tax Act allows you to save up to INR 1.5 lac every year for principal repayment of a home loan. Section 24 enables you to save taxes of up to INR 2 lac on the interest component. A house loan EMI calculator makes the task simpler. You can enter details like housing loan amount, interest rate, and loan term and get the loan amortization table, which contains the details of principal and interest payable. Hence, you can use the house loan EMI calculator to get information about the interest payable, total amount payable, and the EMI.

When you plan the loan based on your requirement and tax benefits, you can choose the right loan amount. Read on to know how a lender calculates a housing loan’s EMI by factoring in the interest rate. 

The Method of Home Loan EMI Calculation

To know the home loan EMI, you have to enter the following details in a house loan EMI calculator:

  1. Principal – Principal refers to the total amount you wish to avail as a loan from the lender. The higher the principal, the more EMI you will need to pay.
  2. Interest Rate – Housing loan interest rates depend on RBI policy rates, the lender’s financial status, and various macroeconomic factors. The higher the interest rate, the more EMI you will pay.
  3. Tenure or Term – The tenure is the maximum duration of the loan when you need to repay. Generally, the maximum term of a home loan is thirty (30) years. The higher term you choose, the lesser will be the EMIs.

How is EMI Calculated?

 

As mentioned earlier, the EMI has two components – principal and interest. If your loan term is twenty years, the interest portion will be more than the EMI principal for the first ten years. As the interest component reduce, you can start paying the principal. Lenders offer several options to repay – cash deposit at the branch, ECS (electronic clearing system), or bank transfer. Housing loan interest rate plays a major role in determining the EMI amount.

What is the Best Way to Reduce EMIs?

While it is true that housing loan interest rates are much lower than other loans, the repayments can still seem painful after a while. A better way is to reduce your EMIs if you can. The best way to reduce your EMI is by prepaying a part of the principal during the initial years of the loan term. During the initial years, the lender uses your EMI to settle the interest cost. However, the principal remains the same. By prepaying the principal in part, you will reduce the principal outstanding, which will bring down the EMIs. You can use a house loan EMI calculator to calculate how much you can save by paying early.

Conclusion

A house loan EMI calculator not only makes it easy for you to decode the housing loan interest rates but also decide the repayment plan in advance.