Loans have increasingly become popular amongst the younger generation who do not have sufficient liquidity at hand but wish to own a property. In India, several banks and financial institutions are offering competing home loan offers to stay in the market. In such a scenario, the prospective buyer must understand and evaluate all home loan offers before settling down for a particular home loan. Banks and lending institutions usually like to investigate the payback capacity of the borrower before closing the deal. Employment and/or prospective employability, businesses and assets can all indicate the payback capacity of the borrower.
The home loan amount is usually about 70 per cent of the total value of the property. The remaining amount (approximately 30 per cent of the total value of the house) is deposited as a down payment with the builder/seller. Equated monthly instalments (EMIs) are the sum that the borrower pays the bank or the lending financial institution each month, to pay back the original loan amount, plus the interest accrued on the loan amount.
The interest on home loans is calculated in two different ways. In the fixed rate of interest calculation, the rate of interest is constant during the whole loan tenor. The calculation of interest accrued on a home loan by the floating interest method is not constant during the duration of the loan. The rate of interest in a floating rate of interest home loan scheme is market-linked. This implies that the condition of the free market dictates the rate of interest.
The Reserve Bank of India mandates banks and financial institutions offering home loans on floating interest rates to revise their rate of interest quarterly. Hence, the borrower sees a reflection of this in his/her EMIs every three months. As expected, home loans on a fixed rate of interest do not favour the borrower. Hence, often home loans with a fixed rate of interest come with other interesting financial offers for the buyer.
To understand the home loan as a financial liability, the borrower needs to calculate the exact amount of EMI to be paid each month. These calculations are tedious and miscalculation at a single step usually causes miscalculations in all subsequent steps of the EMI calculation. Home loan EMI calculators allow the borrower to calculate the EMI to be paid each month on a loan. This exact calculation allows the borrower to consider the EMI amount before making a financial commitment to the bank or the lending financial institution.
Another very interesting feature of the home loan EMI calculator is that it allows the borrower to compare loan offers. This is particularly useful for first-time borrowers who can easily see the financial obligations that each loan offer entails, from the comfort of their homes, before narrowing down the bank or financial institution with which they wish to go into a home loan contract.
Home loan EMI calculators are offered by several companies online and are usually free to use. In addition to the compare and contrast benefit of using the home loan EMI calculators, the option to log in to these calculators anywhere and anytime empowers the prospective buyer by laying out the financial logistics of the loan at a single click.
The user interface of these freely available home loan EMI calculators is designed keeping in mind the lay borrower. The inputs required are usually the home loan amount and the planned tenor of the home loan. Borrowers can easily change both these inputs to see how changes in the loan amount and the tenor will affect the prospective EMIs that will need to be paid once the borrower decides to go ahead with the home loan offer.