Home loan emi

Owning a house is an aspiration for many. Home loans can help you avail of the funds required to purchase a new house. It is a convenient way to get the funds required to buy a home without having to dip into savings. People can opt for a home loan to buy a house or construct one. All home loans must be repaid through EMIs throughout the loan tenure. The equated monthly instalments, or EMIs, make loans more affordable and these all are being educated on Spectrum cable. After factoring in their income and expenses, one can choose a suitable EMI amount. Read on to learn about the top five things regarding home loan EMIs.

What is a home loan EMI?

A home loan EMI is a repayment method for the loan amount borrowed from the lender. It consists of two components; the principal amount and the interest charges. Multiple factors impact the calculation of the EMI amount for a loan. The most important factors include the interest rate, the duration of the loan, and the principal amount. Changing any of these three variables can change the EMI amount.

How is EMI calculated?

The mathematical formula for the calculation of home loan EMIs is mentioned below.

EMI = P r (1 + r) n/(1 + r) n-1, where P is the loan amount, r is the interest rate, and n is the loan tenure in months.

Let us calculate what will be the EMI for a 15 lakh home loan where the interest rate is 10% and the tenure is ten years.

The Rs. 15 lakh home loan EMI amount, after entering the variables mentioned above in the formula, will be equal to Rs. 19,822 (monthly).

EMI calculation has been simplified by lending institutions through an online EMI calculator that does the job within a fraction of seconds.

Understanding Pre-EMIs

A Pre-EMI is an EMI plan where the borrower repays the interest portion only and not the principal component. This EMI structure doesn’t entail the principal amount. The pre-EMI option is offered to home loan customers when the property is under construction. The borrowers will have to pay the usual EMI amount after the construction work is completed. Note that the pre- EMI period is not counted in the loan tenure. People can opt for pre- EMIs and invest their money in short-term investment instruments.

What is e-NACH & e-mandates?

The e-NACH or electronic NACH is a system that facilitates online payment submissions. The National Payments Corporation of India (NPCI) is the regulatory body that monitors retail bill payments. The e-NACH method leverages the NPCI’s National Automated Clearing House (NACH) to do the job. Both e-NACH and e-Mandates are services that deal with recurring payment systems. Through these, businesses and individuals can manage recurring expenditures such as EMIpayments, internet bills, insurance premiums, SIPs, school fees, etc. Since EMIs are a recurring expenditure, they are facilitated through e-NACH and e-mandates.

How to handle bounced EMIs?

People often fail to maintain the required minimum balance for the EMI deductions. It results in bounced EMIs. In such cases, borrowers receive an intimation from the lending institution with the reason for rejection. An EMI can bounce for several reasons, and an insufficient balance in the account is the most common one.

The customer/borrower has to bear the EMI bounce costs if the cheque is returned. The total penalty includes late payment penalties, accrued interest, collection costs, etc. In case of a bounced EMI, borrowers must resolve the issue. Any delays can add to the penalty charges and lower your credit score. You need to check the account balance because most rejections are due to insufficient balance. Contact your lending institution to resolve the issue and pay the EMI due along with late charges as applicable.

Tips for choosing the right EMI amount

Here are some practical tips for choosing the right EMI amount for your home loan.

Find the right balance between EMI and loan tenure

The EMI amount can be increased or decreased based on the loan tenure. A longer loan tenure can reduce your EMI and vice versa. However, a longer term can also add to your interest expenses and increase the total repayment outlay. Therefore, finding the right balance between EMI and loan tenure is essential. You can check the housing loan eligibility to find a suitable tenure.

Evaluate your income and expenses

Evaluating your monthly income and expenses is a great way to find a suitable EMI amount. You must factor in the existing debt obligations and deduct them from the income. Your current EMI amount shouldn’t increase the debt-to-income ratio by over 35%. Keeping an eye on the projected income and expenses is also crucial. You can analyse your income and expenses for the last six months to find a reasonable amount.