Mathematically, EMI is calculated as under:
P x R x (1+R)^N / [(1+R)^N-1]
P = Principal amount of the loan
R = Rate of interest
N = Number of monthly instalments.
The aforesaid variables along with the processing fee are needed to determine your EMI.
For example, if you borrow Rs 51,00,000 for a home loan from Axis Bank at a rate of interest of 10% p.a. and the tenure of the loan is 15 years, your EMI will be calculated as under (assuming a 1% processing fee):
EMI = 5100000* 0.0083 * (1+ 0.0083)^180 = Rs 54,805 / [(1+ 0.0083)^180 ]-1
The rate of interest (R) on your loan is calculated monthly i.e. (R= Annual rate of interest/12/100). For instance, if R = 10% per annum, then R= 10/12/100 = 0.0083.
Finding it complicated? Don’t worry! Use Axis Bank’s Home Loan calculator. It is an automatic tool that makes loan
planning easier for you. Here are the five benefits of using the EMI calculator:
- Easy to access
- Saves time and energy instead of performing manual calculations
- Provides quick results
- Helps you ascertain if the monthly EMI is affordable or not
- Aids you in financial planning
Do note that during the initial years of your loan tenure, you pay more towards interest, and gradually, as you repay the loan, a higher portion is adjusted towards the principal component (see table below). This is because;
EMIs are computed on a reducing balance method, which works in your favour as a borrower.
Remember, the interest rate and your loan tenure are the vital deciding factors for your loan EMI. Higher the interest rate on the loan, higher will be your EMI and vice-versa. Similarly, a shorter loan tenure increases
your EMI and vice versa.
Axis Bank offers the best interest rate across categories of loans.