Kiran wants to buy an apartment worth Rs. 60 lakh, but manages to save only around Rs. 20 lakh. She has no other option but to arrange the remaining amount using a home loan. However, like most financial decisions, availing a housing loan blindly can ruin her finances.
The following article elaborates on all aspects one must consider when looking for an Rs. 40 lakh home loan.
Home loans are specialised forms of secured credit that you can avail yourself of when looking to buy a property or land. In the case of an Rs. 40 lakh home loan, you would need to find out the interest rate and tenure options available. For such a considerable amount, the equated monthly instalments or EMIs would be substantial as well.
As a borrower, you need to calculate such EMI before loan application. While manual calculation is possible, using a home loan EMI calculator is better in every sense.
Also Read: Home Loan Tax Benefits
EMI calculators are specialised online tools that can aid you in determining your monthly liabilities toward a housing loan. With it, you can decide if a particular loan amount is affordable for you.
Since home loans are long-term financial commitments, ascertaining the exact liabilities is crucial for enjoying a hassle-free repayment. Such a calculator would also allow you to plan a budget for the entire repayment tenure.
As stated previously, you can choose to calculate EMIs manually for a home loan. However, doing so is time-consuming. It can also lead to errors in calculation and other issues. The following are some reasons why an EMI calculator is a better alternative:
Fast and easy to use
EMI calculators only need you to enter information in their specific fields. Firstly, you need to enter the loan’s principal amount, which in this case is Rs. 40 lakh. Besides this, you need to enter the loan’s rate of interest. The tenure or repayment period of said credit is the last thing you have to provide.
The calculator will instantly find out your EMIs based on this information.
Accurate every time
Manual calculations always run the risk of errors. Even a minor mistake can lead to misconceptions about your Rs. 40 lakh home loan EMIs. Fortunately, a calculator does not make such mistakes. Considering that you enter your loan’s principal, interest rate and tenure correctly, such an online tool will always show you an accurate result.
Perfect for comparisons
Home loan calculators are free-to-use online tools. Therefore, these encourage borrowers to compare different loan options until they find the most suitable choice. You can keep the loan amount unchanged and keep altering the interest rate or tenure to see different EMI scenarios.
Access to the loan amortisation schedule
Advanced EMI calculators also provide loan amortisation schedules after calculation. This schedule is a breakdown of interest and principal components for each month’s EMIs. Therefore, you can check exactly how much of a particular month’s EMI would go toward the principal and interest repayment.
All home loan EMI calculators follow a simple formula, which is –
EMI = P x R x (1+R) ^ N / [(1+R) ^ N-1]
In this formula, the different factors are –
Therefore, let’s assume an example. Kiran avails an Rs. 40 lakh home loan at 6.7% interest p.a for 20 years. In such a case, the factors would be the following –
EMI = 4000000 x 0.55 x (1+0.55) ^ 240 / [(1+0.55) ^ 240-1]
Solving this equation, you would get EMI as Rs. 30,296.
When obtaining an Rs. 40 lakh home loan, five factors play a significant role in determining your EMIs. These are as follows –
How much interest you are liable to pay depends on the rate at which a financial institution is lending you the sum. Higher rates would lead to increased interest liabilities and higher EMIs, and vice versa.
You have to be careful when picking up such a loan’s tenure. A considerable repayment period would reduce your EMIs and increase the loan’s interest cost. Opting for an excessively restricted tenure can reduce the interest burden but can raise your EMIs substantially.
When buying a property, you cannot borrow its entire cost from the lender. You have to pay a part of it from your pocket. This is called a down payment.
If you pay a larger portion of the cost through a down payment, you would need to borrow less. Thereby, your EMIs would be lower in such cases.
Prepaying is clearing a portion of the outstanding loan before time. Doing so lowers the principal outstanding, thereby decreasing subsequent EMIs. Remember that prepayment can involve certain additional charges, depending on the financial institution.
If you are about to borrow an Rs. 40 lakh home loan from Navi, here’s how you can use the calculator –
Visit Navi’s website and hover your cursor on home loans. From there, select the EMI calculator option.
When this calculator opens, use the slider or appropriate field to choose your principal amount.
Adjust the second slider to reflect your preferred loan repayment tenure. This can range from a year to 30 years.
In the third and final field, enter your home loan’s interest rate. Navi offers home loans starting from just 6.46% per annum.
After these adjustments are complete, the calculator will show your EMIs instantly. To use the tool on the go, you can download the Navi App from the Google Play Store or the Apple App Store for free. The financial institution offers a housing loan of up to Rs. 10 crores.
In the following section, consider the loan amount as Rs. 40 lakh and the interest rate as 6.5%. Now, let’s see how the EMIs differ when only the tenure of the loan changes. Notice how the EMIs reduce with an increase in tenure or repayment term.
|15 years||Rs. 34,844|
|20 years||Rs. 29,823|
|25 years||Rs. 27,008|
To simplify your choice, here is a selection of lenders providing home loans and their respective rates in 2022 –
|Name of Lender||Starting Interest Rate|
|State Bank of India||6.65%|
Regardless of the amount of home loan you want to borrow, using an EMI calculator is vital. Such a tool can help you plan your finances beforehand, thereby ensuring easier repayment.
Borrowers can also understand how each factor of a home loan affects the monthly liabilities after using such a calculator. This is especially true for big-ticket borrowings, such as Rs. 40 lakh home loans.
Ans: A home loan balance transfer is the process of shifting your outstanding home loan principal to a different lender. Usually, a borrower would decide to transfer his/her balance if the new lender charges a favourable interest rate. With lower interest, the borrower’s EMIs reduce automatically, lowering his/her monthly liabilities.
Ans: You can find out the total interest cost of a loan by using an EMI calculator. All you have to do is enter the values for the loan amount, rate of yearly interest and number of months of repayment period (tenure). The results will show the monthly instalment and total cost of interest.
Ans: Choosing to clear your home loan using an increased term can help reduce your EMIs. However, such a decision also comes with a major drawback. By the end of this period, you would have to pay a significantly higher interest cost.
Ans: Besides the borrower’s eligibility, several external factors also play a role in determining your home loan’s interest rate. The Reserve Bank of India’s repo rate is the most important among them. Based on the country’s economy, the RBI increases or decreases its repo rates. This, in turn, leads to an increase or decrease in housing loan rates.
Ans: Foreclosing a home loan refers to repaying the outstanding sum before the tenure runs out. Doing so can be beneficial in some regards, such as savings on total interest cost and a boost in the borrower’s credit rating. However, you should consider that foreclosure usually involves an additional charge to the lender before opting for it.
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