To know how much you have to pay every month, you will have to calculate the EMI or Equated Monthly Installment for your housing loan. EMI calculators online make it easy for you. However, knowledge of the process on how to make this calculation manually will help you understand this math better. Follow these simple steps to explain the process.
What is EMI?
EMI stands for Equated Monthly Installment, which is the fixed monthly payment you make to repay your loan. It consists of two parts:
Principal Amount: The loan amount borrowed.
Interest Amount: The interest charged by the bank or lender.
The formula to calculate EMI is:
Where:
- P = Principal loan amount
- R = Monthly interest rate
- N = Number of monthly instalments
Let’s break this down step by step.
Steps to Calculate EMI Manually
1. Convert the Annual Interest Rate to the Monthly Interest Rate
Most banks provide the interest rate on an annual basis. To calculate EMI, you need the monthly interest rate.
Formula:
For example, if the annual interest rate is 10%, then:
2. Determine the Number of Monthly Installments (n)
The loan tenure is usually given in years. Convert it into months.
Formula:
For example, for a 20-year loan:
3. Apply the EMI Formula
Let’s say:
P = ₹50,00,000
R = 0.0083
N = 240 months
Substitute these values in the formula:
Let’s make it even simpler.
Why Do You Need to Know How to Calculate EMI Manually?
Understanding the manual calculation of EMI helps you:
- Plan your finances better
- Compare different loan offers
- Understand the impact of interest rates and tenure
- Negotiate with lenders
Example Calculation Table
| Principal (₹) | Interest Rate (Annual) | Tenure (Years) | Monthly EMI (₹) |
| 50,00,000 | 10% | 20 | 48,251 |
| 30,00,000 | 8.50% | 15 | 29,475 |
| 25,00,000 | 9% | 10 | 31,668 |
Factors That Affect Your EMI
- Principal Amount: The higher the loan amount, the higher the EMI.
- Interest Rate: Higher interest rate means higher EMI.
- Loan Tenure: Longer tenure means lower EMI but increases the total interest paid.
Tips to Reduce Your Housing Loan EMI
- Choose a longer tenure: It reduces your monthly EMI but increases the interest.
- Make a higher down payment: A higher initial payment reduces the principal amount.
- Negotiate the interest rate: A lower interest rate will significantly reduce your EMI.
- Pay extra pre-payments: Additional payments at regular intervals help bring down the outstanding principal amount.
Simple Formula for EMI Calculation (Rough Estimate)
If you still want a rough estimate:
For loan of ₹50,00,000 with interest rate 10% per annum for 20 years:
P = ₹50,00,000
R = 0.0083
N = 240
The estimated EMI would be approx. ₹48,251.
Mistakes in Calculating EMI
| Error | Impact |
| Using yearly interest rate | Wrong computation is done |
| Skipping loan processing charge | Undercomputes total expenses |
| Pre payments are not included | Saving will be missed |
| Rounding at an inappropriate moment | Incorrect result |
Conclusion
Calculating EMI for housing loan appears to be pretty complex at first. However, upon actually practicing it, it is actually quite simple. This helps one keep better track of finances and make more informed decisions by understanding the formula and steps involved in EMI.
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