The introduction of Government-backed schemes like the Pradhan Mantri Awas Yojana (PMAY) has eased house purchase financing for Indians. While interest subsidy under the scheme is subject to specified eligibility and approval, individuals looking forward to financing residential property purchases can always seek out home loans at competitive interest rates today. Nevertheless, as these are long-term advances, it is only prudent to opt for financing that keeps the home loan EMIs affordable and the total interest liability in check.
One of the best ways to assess whether your loan requirements meet your monthly and long-term affordability is to use a housing loan EMI calculator.
Tips to optimise the use of a housing loan EMI calculator
A home loan EMI calculator is a dedicated financial tool designed with several features for in-depth affordability assessment of the loan amount and tenor you plan to secure. Here’s a look at some smart tips that can help maximise the available calculator features for optimised borrowing-
- Consider the impact of your selected loan amount on the EMIs
To start with the use of a home loan EMI calculator, you would be required to make necessary entries to the financial tool for EMI computation. The loan amount you seek to avail is one of them. Your home loan amount selected impacts the EMIs payable directly. Thus, a high loan value selected will lead to higher EMIs and vice versa.
Based on your home loan eligibility fulfilment, it can be possible to avail a higher loan amount than that which accommodates the EMIs payable comfortably. While it reflects a decent borrowing profile, choosing a home loan amount higher than your comfortable affordability strains your finances unnecessarily. It is thus best to keep a check on the changes in EMIs payable when assessing loan amount affordability, and stick with an amount that keeps your instalments conveniently payable.
- Check the effect of loan tenor selected on EMIs
The loan tenor is another entry you need to make when using an EMI calculator for home loan EMI estimation. However, its impact on the EMIs computed is not the same as that of the loan amount chosen. A longer tenor means shorter EMIs and vice versa. Thus, if you are looking for immediate affordability for your home loan, you can choose a longer repayment term. Similarly, a shorter tenor would be suitable if higher EMIs are easily affordable for you. However, the overall affordability of your loan also depends on the total interest payable as per tenor selected when using a housing loan calculator explained hereunder.
- Know how interest payable would change as per tenor selected
Even though a long tenor keeps the EMIs in check, it results in higher interest payable because of a longer borrowing period, irrespective of the applicable home loan interest rate. It is thus wise to consider the impact of a long tenor on the EMIs payable as well as the total interest liability to check affordability. You must thus strike the right balance between these two payable values when choosing a home loan tenor to achieve the overall affordability of your home loan.
- Make prepayment decisions based on the amortisation schedule
Your home loan EMIs comprises both principal and interest components of the total loan liability payable, with each component varying for all instalments payable. In the initial months, lenders often keep the interest component high to make up for the risk involved, with a gradual increase in principal payable as the tenor advances. The EMI calculator also displays this amortisation schedule, with a principal-interest break-up for each EMI as well as the outstanding loan payable for each year.
When planning to prepay your home loan, you can check out the EMI components and time your prepayment appropriately. The timing you choose is thus one of the important factors to keep in mind when prepaying your home loan. This should thus help you maximise your interest savings. Similarly, you can choose your home loan balance transfer decisions well too, based on these details. A well-timed balance transfer can ensure you repay a much lower amount as against the agreed liability during loan approval.
Some lenders providing these calculators also extend pre-approved offers to simplify the home loan process in India and make financing quick as well as convenient. These offers are available on several financial products, including home loans and loans against property. Provide minimal contact details to check your pre-approved offer.
Choosing your home loan EMIs as per your financial standing can not only help with immediate loan affordability but also keep your long-term repayment goals in place. When borrowing the advance, make sure to use a home loan eligibility calculator as well, which should help you determine the maximum loan amount you can avail based on the risk factors associated with your borrowing profile, such as your age, occupation, city of residence, and monthly income.