Being a homeowner in today’s world has become more difficult due to factors, such as the rising property costs and lack of decent home loan offers. Imagine the frustration of saving for five years to afford a property that you’ve long admired and upon wanting to acquire it, you’re told that the price has gone up.
Taking a home loan is a great way to buy or build properties. With the amount obtained from a bank or housing finance company (HFC), you can purchase a property and also invest in real estate using the property in question. However, doing this means that you must understand the concepts associated with a home loan.
One such concept is the equated monthly instalment (EMI), which represents the value of the loan taken from a financial institution. It comprises the principal amount and the interest charged for taking the loan. Before taking a home loan, you should be aware of what the loan’s EMI value is so you can prepare adequately.
Terms Associated with a Home Loan EMI
Below is a list of the three terms that are associated with the EMI on a home loan:
Principal Amount
This is the total amount taken from the lender, minus the interest. It also determines whether your EMI will be low or high. The lower the principal amount gets, the lower your EMI will be.
Interest Rate
This refers to the rate at which you are charged the loan. Remember that in repaying the amount borrowed, a portion goes to the interest component.
Tenor
Apart from the duration of your home loan, the tenor also affects your EMIs. If you have a long tenor, the EMIs will be low and vice versa. However, know that having a long tenor means that you will spend more on your home loan’s interest component.
Two Factors that Affect Your Home Loan EMI Value
Some factors determine whether the EMI on your home loan will be high or low. Two of those factors include:
Credit Score
This is an official statement that contains your debt repayment record and a score that symbolizes your creditworthiness. Having a score of 725 and above makes lenders likely to strongly consider your home loan application.
However, if you have a low score, some lenders may offer you home loans but these often come with either the demand for a co-applicant or a high-interest rate.
Property Location
If the property you desire to own is sited in a community with little to no amenities, expect to pay higher EMIs. This is because such properties have a low resale value.
How to Calculate the EMI on Your Home Loan
If you’re eager to get detailed information on what you will be paying as EMIs, read on to find out how to calculate using a manual or automated method.
Manual Method
Here’s the formula for calculating the EMI:
P × R × [{1 + R) ^ N} / {1+R) ^ N}]
P represents the principal amount
R represents the interest
N represents the number of months in the tenor
Note:
Automated Method
To do this, you require an online home loan calculator. Simply visit the lender’s website to access this financial tool that provides quick and easy-to-read results. Input your desired amount, tenor, and interest rate. The calculator will instantly display the results according to the information you supply.
Three Ways to Decrease Your Home Loan EMI
If after calculating the interest on your home loan, you discover it is high, there are certain ways to reduce it. Below are three ways to achieve that:
● Make frequent prepayments.
● Make an additional EMI payment yearly.
● Discuss better terms with your lender and if they refuse, opt for a balance transfer of your home loan.
A quick tip: When you use your preferred lender’s home loan EMI calculator, you get detailed information promptly.
Apply for a Home Loan Today
We recommend that you take a home loan whose repayment will not burden you greatly. Opt for a lender that offers a vast range of home loan offers, a balance transfer option, and other amazing benefits for you and those in your network.
