Home loans are long-term loans availed for purchasing or constructing a home. The amount of interest to be paid on the loan is calculated based on the home loan interest rate. The interest rate is charged by the lender as a percentage of the principal loan amount, as a charge for borrowing funds. Therefore, before you apply for a home loan, estimating the overall interest liability towards the loan is vital. There are two methods to calculate this:
- Manual Calculation of Home Loan Interest Rate:
You can calculate your EMI liability and interest rate manually by using the following formula:
EMI = [P x r x (1+r) ^n]/[(1+r) ^n-1]
In this formula, P refers to the principal, r is the home loan interest rate, and n refers to the loan tenure in months or the number of instalments the borrower has to pay.
For example, if you avail loan of ₹50,00,000 at a fixed interest rate home loan of 12% for a 10-year tenure, then your EMI will be calculated as under:
For interest rate, 12% p.a. = 0.01 (12/100/12)
10 years = 120 months
EMI= ₹5000000 x 0.01 x (1+0.01) ^120] / [(1+0.01) ^120-1 = ₹71,735
The total amount payable will be ₹71,735 * 120 = ₹86,08,257. The principal loan amount is ₹50,00,000, and the interest amount will be ₹36,08,257.
- Using Online EMI Calculator:
A home loan EMI calculator helps you check home loan interest rates easily and figure out the interest you will need to pay with your home loan. To arrive at a result after the completion of mathematical calculations, you will need to enter the following details on the calculator:
- Home loan amount
- Home loan interest rate
- Loan repayment tenure
After filling out the required details in the fields provided, click ‘Calculate.’ You will see a detailed breakup of your loan mentioning the amount payable towards interest. The online EMI calculator is free to use.