EMI – Tips for Home Loan Borrowers

What is an EMI?

EMI stands for Equated Monthly Installment which is a preset amount of payment a borrower has to make to the Lender at a specified date on monthly base. EMIs consists of your principal loan amount and interest amount, payable every month.
emi-calculator

Although the EMI remains fixed for every month, the amount paid towards principal and interest changes. The interest component constitutes a major portion of the EMI payment in the initial stages. However, as the loan period progresses and the principal outstanding reduces, the portion of interest repayment decreases. This happens until the end of the loan period when the complete loan amount has been paid off.

Here we are giving you some tips that can help you repay your home loan more easily and bring down the interest cost over  the term. A home loan is always a long-term commitment. It regularly consumes a big bite of our earnings. Therefore, some basic planning and strategy can help in bringing down its overall cost. While the savings may not be major in the near term, but at the end  it can translate to a large amount. Below are a few tips:

Keep your  EMIs steady:

Rather than opting for a reduction in EMIs, go for a reduction in term while keeping the EMIs constant through the loan rate cycles. This way, the interest cost will be lower. Remember, the longer the term, the higher the interest cost while the EMIs are lower, and vice versa.

Plan for Pre-payments:

Set aside some amount of money regularly in a savings instrument. Use some part of early savings on pre-payment of the home loan. Over the term, such regular part prepayments will translate to a considerable saving on interest cost. Interest is calculated on outstanding amount and part prepayments bring it down, leading to a lower interest cost overall!!

Increase  Down payments:

While avail a home loan, you have to fund a part of the purchase on your own. This is called down payment or margin money. The more you give as down payment the lower will be your loan amount and the overall interest cost too will be the minimum.

MATHEMATICAL FORMULA

Our EMI Calculator is easy to use, intuitive to understand and is quick to perform. You can calculate EMI for home loan, car loan, personal loan, education loan or any other fully amortizing loan using this calculator. More Details: Home Loan EMI Calculator

Unfortunately, you cannot access the Excel spreadsheet everywhere. In such a case, you can use your mathematical mind or an electronic calculator to know how much the EMI comes to. The mathematical formula for calculating EMIs is:

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

where P stands for the loan amount or principal, R is the interest rate per month [if the interest rate per annum is 11%, then the rate of interest will be 11/(12 x 100)], and N is the number of monthly installments, ^ Means to the power of.  When you use the above formula, you will get the same result that you will get in the Excel spreadsheet.

 

Source & Image: Times of India, Net

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