Last Updated on March 9, 2024 by admin
Buying a new house by taking a home loan is a popular way of gaining home ownership in the contemporary era. However, people often forget about the long-term commitment associated with loan repayment. Buying a home from personal savings is not for everyone because home prices are touching the sky. Home loans provide the perfect solution to bridge the gap between people’s savings and home prices. Since the value of houses is higher, the loan amount borrowed is also substantial. Therefore, it is essential to plan the EMIs well using a home loan calculator. Read on to learn more about the home loan calculator and why it is an excellent asset for loan applicants.
What is a home loan calculator?
A home loan calculator is an automated financial tool on digital lending platforms. It helps prospective applicants calculate EMIs and comprehensively understand their loan amount’s breakup. In addition, it depicts the interest and principal components of a home loan. All you need to do is enter the loan amount, interest rate and loan tenure in the given fields. The EMI calculator will instantly show you results for the data entered. Most home loan calculators feature a drag toolbar. It can be simply dragged to respective numbers in different fields. A home loan calculator can be a valuable financial planning tool if used wisely.
How does a home loan calculator work?
Home loan calculator help to automate the EMI calculation process. It works on the mathematical formula for EMI computation. Three key variables can influence the results for EMI, including principal amount, interest rate and tenure. That’s what a home loan EMI calculator requires from the user. They must enter the principal loan amount, interest rate and duration (months or years).
Here’s the EMI calculation formula:
“EMI = P × r × (1 + r)n/((1 + r)n – 1)”
P = Principal loan amount, r = rate of interest, n= tenure in number of months.
Key advantages of a home loan calculator
Now that we have a fair understanding of how home loan calculators work let’s take a quick look into the key advantages of using one.
1. Finds the ideal loan amount
Choosing the right home loan amount is of utmost importance. It can play a pivotal role in your overall financial well-being. A high loan amount also invites higher interest expenses. You must only borrow an amount that can be easily repaid through EMIs. A home loan EMI calculator can find the ideal loan amount matching your repayment capacity and borrowing needs.
2. Compare different home loan products
Using an online home loan calculator, you can easily compare different home loan products from multiple lenders. It can help you choose an affordable loan product. Different lenders might offer varied interest rates and loan tenures. This can influence the EMI amount for the loan. By comparing multiple loan products, it’s easier to find the most suitable one. You can also opt for a home loan transfer whenever you find a better deal.
3. Choose the right tenure
A home loan calculator can help you find a suitable tenure. You can do this by comparing EMIs for multiple sets of the principal amount, interest rate and loan term. Many times, the principal amount requirement can’t be changed, and the lender also fixes the interest rate. In this case, the only option to find the right EMI amount is to change the loan tenure. A home loan calculator can easily find the right tenure for you.
4. Prepayment planning
Prepayment of a home loan is the process of repaying the loan amount (in part or whole) before the maturity date. Prepaying the loan can help you save a good amount on interest expenses. Prepayment reduces the principal component. As a result, the interest charges are reduced. However, at times there are prepayment penalties. Therefore, it is prudent to compare the pros and cons of prepayment. A home loan calculator can also help you with prepayment planning.
