10 MAY, 2022

When you apply for a home loan, it allows you to buy one of the biggest assets of your life and reap the benefits of homeownership while paying it off over a long period. This, however, also comes with the obligation of Equated Monthly Instalments (EMIs). EMIs are made up of the principal and the interest that you monthly repay the lender over the loan tenure. Typically, EMIs make up for a significant portion of your monthly budget given that the home loan amount is usually large. Hence, financial planning and having a clear idea of how you are going to repay your home loan are crucial before you apply for a home loan. A home loan EMI calculator is a helpful tool in such planning as it gives you an estimate of what your EMI will likely be.

How to use a home loan EMI calculator for financial planning?

A home loan eligibility calculator helps to predict and plan for future finances in the following ways:

  • One of the first things that a home loan eligibility calculator does is that it helps you come up with a budget for home buying. It allows you to narrow down your choices and direct your energies to the homes that fit your budget and make the home buying process more convenient.

  • It helps you decide the home loan tenure. Your EMI is determined by your home loan amount, home loan interest rate, and home loan tenure. A longer home loan tenure means lower EMIs and hence a long-term home loan tenure allows you to comfortably meet your EMI payments. However, the longer the loan tenure, the higher is the interest outgo. Narrowing down on the right loan tenure is essential and when you use a home loan EMI calculator, you can see how changes in your loan tenure would impact your EMIs and total payable interest. This is helpful in figuring out the ideal loan tenure for you.

  • Once you know your ideal home loan tenure and have calculated your EMI, you can create a monthly budget and see how you need to adjust your expenses. This also allows you to see how much money you have left for investments to meet your other financial goals.

  • When you use a home loan eligibility calculator, you also get to see your home loan amortization schedule. This is an outline of all your EMI payments over the loan tenure and includes your yearly opening and closing balances. This schedule is helpful in seeing how your debt obligation will keep reducing over the years and can help you visualize meeting your goal and motivate you to stick to your budget.

The bottom line

The three inputs of a home loan EMI calculator – home loan amount, interest rate, and loan tenure – give you the opportunity to try various permutations and combinations to land on a home loan that both, works for your budget and helps you buy your dream house.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.