NEW DELHI: If you plan to buy a house with the help of a home loan, equated monthly installments (EMIs) will likely be the highest monthly expense. Therefore, before approaching the bank you may want to calculate your EMI.
The EMI comprises of two parts – the principal and interest. In the initial years, interest accounts for majority of the EMI while towards the end of the tenure, principal accounts for the majority portion of the EMI.
The calculation of your EMI depends on three factors- principal outstanding, tenure of the loan, and the interest rate. If your outstanding is higher, your EMI will also be higher. However, if you opt for higher tenure your EMI will go down provided the interest rate and loan amount remains the same. Same is the case with interest rates. Higher the rate of interest, the higher will be the EMI.
Now let’s understand the formulae.
You can easily calculate the EMI using the PMT formula in Excel. For that, you’ll need three variables—the interest rate (rate), the loan period (nper) and the loan amount or the present value (PV). The rate of interest will be taken as monthly rate as EMIs are paid monthly. Therefore, if the interest rate is 10%, you need to divide it by 12. Also, the tenure (nper) will be the number of months. So, if your loan tenure is 20 years, the tenure will be 20×12 = 240 months. So, your EMI on a loan of ₹50 lakh at 10% interest rate and tenure of 20 years will be ₹48,251. You can also use the mathematical formula P*R*((1+R)^n)/(1-(1+R)^n), where P is the principal outstanding, R is the monthly rate of interest and n is the number of monthly instalments.
