Home loan interest rate calculator is an online tool which is based on a mathematical formula and is used to calculate the amount of Equated Monthly Installment (EMI) that the borrower needs to pay every month till the time the entire loan amount is fully paid back. The calculation depends on the rate of interest, amount of loan and the time period for which the loan has been taken. The base value of these parameters should be:

  • Loan amount (Principal) – between Rs.50,000 to 1crore rupees.
  • Tenure of loan – between 1 to 30 years
  • Interest Rate – ranges from 1% – 50 % though it varies from one lending institution/ individual to another.

The formula that is generally used to calculate the EMI is:

EMI = [P X R X (1+R) ^ n]

 [(1+R) ^ n-1]

The calculation yields following results:

  1. EMI: is the equated monthly installment that the borrower needs to pay every month till the time the entire loan amount is paid back.
  • Breakup of EMI and Principal: the breakup tells the amount of home loan interest and the principal remaining at the end of each month after paying the installment for that month.
  • Schedule for Amortization: Amortization refers to the way of repayment of the loan. A person who is able to arrange for a surplus more than what he thought of in a given month generally wants to make a payment towards the principal amount to reduce his EMI. The amortization schedule indicates the breakup of the loan payments.

Features of a good home loan interest rate calculator

A good home loan EMI calculator should not only calculate the equated monthly installment to be paid by the borrower at the end of each month but also the following:

  1. Quick, handy and easy usage: The calculator should be quick, handy and easy to use. The person using it should be able to get the results in an easy manner in no time thereby helping him understand the various options available to him in the market.
  • Comparative analysis: A good home loan interest rate calculator is one which is able to compare the loan schemes/options available in the market. The comparisons are made in the light of money that can be saved by choosing a particular lending institution. Different lending institutions have different schemes and varying interest rates, a good calculator should be able to make all such comparisons.
  • Better Options: A good home loan calculator should be able to look for the best possible payment option by taking different values of inputs, like number of years, interest rates, etc.
  • Amortization Schedules: By entering the details of monthly payments, interest rate and time period of the loan, a good home loan calculator should be able to give repayment options to the applicant as that helps him/her plan his monthly finances in advance.
  • Customized calculations: Based on the applicant’s inputs (interest rate, amortization time and loan amount), the home loan interest rate calculator should be able to generate customized results.
  • Helps in better understanding of the product: Since the home loan interest rate calculators are mathematical tools and the results are generated in figures, the understanding of the product/service available is absolute and not theoretical.
  • Maintain Customer satisfaction: A home loan EMI calculator is available on each and every bank’s or financial institution’s web portal to get more customers and achieve their satisfaction.

Conclusion Knowing beforehand how much needs to be paid as EMI (equated monthly installments), helps the borrower plan his monthly finances proactively. The results are based on the inputs given (principal, time and the home loan interest rate) so there is a rare possibility of the same going wrong though there can be a variation in the results due to varying home loan interest rate from one lending institution to another.