To clearly understand how much you must pay towards loan repayment each month, you must calculate the equated monthly instalments (EMI) of your home loan. By figuring out the EMI, one might be able to decide with certainty how much one must pay each month and organise the monthly expenses accordingly. Likewise, borrowers wondering how to calculate home loan interest can use the traditional formula to get the value.
How to calculate loan EMI interest rates?
Borrowers can use this simple formula to calculate their housing loan interest rate.
EMI = P × r × (1 + r) n/ ((1 + r) n – 1)
In this formula, P represents the principal amount, N represents the number of monthly instalments, and R is the rate of interest on a monthly basis. However, borrowers must remember that calculating these manually would be difficult and leaves room for errors. Therefore, a home loan interest rate calculator can be used by individuals.
Now that individuals know how to calculate EMI interest rates, here are a few factors that affect home loan interest rates.
- RBI policy: If RBI policies bring about any changes in the repo rate, it can affect the home loan interest rates. For example, after a recent introduction of the MCLR system, borrowers can now set a date, which is usually 6 months or 1 year, after which the rate of interest will be reset. This helps borrowers benefit from a fall in interest rates.
- Supply of money: When financial institutions have an abundance of money to lend, they tend to offer low housing loan interest rates. However, financial institutions are likely to charge a higher interest rate if the economy faces a shortage of funds. In addition, when there is a high demand for loans in the market, interest rates go high and vice versa.
- Credit rating: The credit rating of an individual determines his/her creditworthiness. If the score is high, a borrower is considered creditworthy, and lenders might offer him/her a lower interest rate. Similarly, if borrowers have a low credit score, lenders might consider that as risky and demand a high-interest rate.
The home loan interest rates directly affect the monthly EMIs of borrowers. Thus, knowing a few tips to decrease the home loan interest rate will further help borrowers reduce their EMI amounts.
Settling at the lowest interest rate is not the ultimate thing borrowers should do while opting for a home loan. Other than comparing the interest rates, borrowers should also compare the offers, services, terms and conditions and reviews of the lender.
The research process for a home loan should begin months before the final application. While researching, borrowers should not forget to check the list of documents required, the eligibility criteria of home loans, and the charges associated with a home loan. Knowing such things in advance will let the borrowers make an informed choice and negotiate better offers with the lender.
When choosing a lender, make sure to check your pre-approved offer by simply providing your personal and financial information. Individuals need to enter their names and contact details on the website to find out the offers.
So, hopefully, this article will be able to help individuals who are wondering how to calculate home loan interest rates. With the advancement of technology and the internet, borrowers no longer need to visit multiple lender offices to get suggestions on their home loans. Instead, they can search for information on the internet and also get an idea of the EMI and eligibility by using various online tools. After the research phase is over, borrowers can directly start their application process by downloading the application form and submitting it.