Calculating Home Loan Interest: Tools & Methods Explained

In any loan type, the interest cost is one of the major considerations and has the highest share in EMIs in the early days of loan repayment. And, when it comes to a home loan, the total interest cost can sometimes be equal to or more than the home loan amount, depending on the home loan repayment tenure. Therefore, before applying for a home loan or deciding on the repayment tenure, you should know the total interest amount you will be paying during the loan tenure.

Please note that there can never be an accurate loan interest calculator. However, we can give you some useful tips on the factors that affect home loan interest rates, after which you can use our home loan EMI calculator. It can help you to calculate EMIs and total interest cost at ease and instantly.

Types of Home Loan Interest Rate

The following are the two types of home loan interest rates offered in India:

Fixed: The interest rate remains constant for the entire tenure of the home loan

Floating: The interest rate changes periodically and is driven by market forces like inflation, the country’s monetary policy, and other factors.

If you have selected a floating interest rate for a home loan, the change in interest cost is adjusted against the EMI. For example, if the interest rate increases, the EMI amount will also increase and vice versa.

Under floating interest rate type, it is difficult to know the total interest cost of the home loan beforehand.

How to Calculate Home Loan EMI?

To calculate the EMI on a home loan, you can use the following home loan interest formula:

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

P= Principal
R= Rate of Interest
N= Loan tenure in months

For example, if you take a home loan of ₹25 lakh with a tenure of 10 years or 120 months at a 10% rate of interest, the EMI would come at ₹33,038. The total repayment comes at ₹39,64,560.

EMI= [25,00,000* 0.10* (1+ 0.10)^120] / [(1+0.10)^120-1] =₹33,038

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Similarly, for 15 years or 180 months loan tenure, the EMI payable would be ₹26,865 and the total amount paid will be ₹48,35,700.

By subtracting the total principal loan amount from total repayments, you can calculate the total home loan interest cost.

In the case of floating interest rates, the total interest cost will differ, depending on the quantum change in the interest rate during the loan tenure. Using a home loan EMI calculator makes it easier for you to calculate both fixed and floating interest costs.

Benefits of Housing Loan EMI Calculator

• It lets you know, whether the home loan is affordable for you or not
• It helps you to decide on the budget of home purchase based on your finances
• It helps you to choose the right home loan tenure based on your repayment capability and other financial obligations
• It lets you know the exact interest cost and break up of interest cost in each EMI
• It provides highly accurate results instantly
• It helps you to compare different home loan offers
• It helps in loan management and lets you re-calculate your repayment obligations in case of any prepayments
• It helps you to validate the information and verify the home loan EMI calculations of the lender

Factors that Affect your Home Loan Interest Rate

Multiple factors affect your home loan interest rate, some of them are:

Loan-to-value ratio (LTV): It refers to the percentage of the property value that will be financed through a home loan. Most lenders offer up to 80% of the property’s value as a loan. However, if you pay a larger down payment amount, you stand a chance to get a lower rate on your home loan.

Credit score: It is a statement of your past credit behaviour and indicates your creditworthiness. A higher score, above 750, will help you to get a home loan at a lower interest rate and with attractive terms.

Job profile: Individuals with stable income and employed with a reputed organisation or a government organisation are considered low-risk borrowers and are preferred by lenders and offered lower interest rates.

Location of property: Homes situated at prime locations are generally offered a lower interest rate due to their high resale value, because, in case of default, the lender can easily recover the loss.

Tenure of the loan: Lenders generally offer a lower interest rate on home loans with shorter tenure compared to longer tenure.

Conclusion

Taking a home loan is a big financial decision, as you will be blocking a significant part of your income for EMI payments for a very long period. Therefore, using the free online home loan EMI calculator, plan your EMIs and make your home buying experience smoother.

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