There are many methods of loan repayment, but the popular one is an equated monthly instalment (EMI). An equated monthly instalment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly instalments are applied to both interest and principal each month so that over a specified number of years, the loan is paid off in full.

The topmost thought in your mind when you take a loan to purchase your home will be the loan repayment aspect. Your home loan is repaid through equated monthly instalments or EMIs. This is a fixed amount you need to pay your lender each month till you complete repaying your home loan. Each EMI is made up of interest payable on your loan and part principal repayment. Usually, a home loan calculator is a term loosely used for an EMI calculator.

If you are wondering how to calculate home loan EMI, use the EMI calculator that most financial companies provide on their website. Here is the information you need to input in the EMI calculator:

• Your loan amount
• Your loan tenure
• Interest rate

Based on these three parameters, the EMI calculator computes the EMI you need to pay the financial institution each month. Some financial institutions’ EMI calculator also reveals how much interest you will pay over your loan tenure.

Here is an example of how an EMI calculator works:

Let’s say you have taken a loan to improve your home. 10,000 $ for a tenure of 20 years at 1.5% interest. Your EMI will be 155$, which includes interest and principal. You pay a heavy interest in the starting year and it became lighter in the last year and vice versa for the principal.

An EMI calculator is useful in planning your cash flows so that you make your home loan payments with ease. In other words, an EMI calculator is a useful tool for your financial planning and loan servicing needs.

It’s advisable to limit your loan repayments to a maximum of 50%-65% of your net monthly income. You could use an affordability calculator to compute how much of your earnings are being earmarked towards loan repayments.

Source From: www.hdfc.com