How Home Loan Emi Works in India?

16 JUNE, 2021

Purchasing a property requires a substantial amount of money, and hence it can be very difficult to save for your dream house. That’s when a home loan can help. A major benefit of a home loan is that it can be repaid in easy Equated Monthly Instalments or EMIs. However, paying higher EMIs can reduce your disposable income and lead to major lifestyle changes. Hence, it is important to calculate your home loan EMI before applying to manage your monthly expenses.

Below, we provide further details about a home loan EMI, the factors that determine it and how it is calculated.

What Is Home Loan EMI?

Home loan EMI or Equated Monthly Instalment is a systematic way of repaying the home loan. It includes the repayment of principal amount as well as the interest payable on the outstanding home loan amount. The EMI is divided throughout the tenure of the loan so that a uniform amount is paid every month.

The major factors that determine your home loan EMI are mentioned below:

Factors That Determine Home Loan EMI

Principal amount

Principal amount is the amount you borrow from the lender. The higher your principal amount, the higher will be your home loan EMI.

Interest rate

The rate at which you borrow the money from the lender plays a crucial role in determining your home loan EMI. The higher the interest rate, the greater would be your home loan EMI. Therefore, you must avail a home loan in India with a lender that offers a competitive interest rate. With us at Kotak Mahindra Bank, you can get a home loan at an e rate of 6.65% p.a. Keep in mind that a high credit score, good repayment capacity, and steady monthly income can help you avail home loan at a lower interest rate.

Loan tenure

A long-term home loan will have a relatively lower EMI. However, by opting for a long-term home loan, you would end up spending more towards the interest pay-out. This will increase the overall cost of borrowing.

On the other hand, if you opt for a short-term home loan, your EMI will be higher. However, you will be able to save on the interest outgo by choosing a short-term home loan. It’s advisable to opt for a tenure that makes your home loan EMI affordable. This would reduce the chances of default on your home loan.

Calculate Your Home Loan EMI Beforehand

Having an estimate of your home loan EMI can help you make timely repayment of the home loan. Additionally, you can plan your monthly budget keeping your home loan EMI in mind. It’s possible to calculate your home loan EMI by using an online home loan EMI calculator.

You will have to enter the loan amount, loan term, and interest rate in the online EMI calculator to calculate your monthly instalments.

The formula to calculate the home loan EMI is mentioned below:

E = P x r x (1+r) ^n/ ((1+r)^n-1),

Where,

E stands for EMI

P is the principal amount that you want to borrow

R is the monthly rate of interest

N is the repayment tenure in months

The online home loan EMI calculator is easy to use and the output provided is error-free. Thus, using multiple combinations of interest rate and tenure you will be able to estimate how much of a loan amount can you afford. At Kotak Mahindra Bank, you can easily avail a home loan and customize your EMIs to best suit your repayment capacity.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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