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To measure the equated monthly loan installments (EMIs) that you would need to pay if you take a home loan, a home loan EMI calculator can be used. While buying a home is a very important economic and personal decision, taking a home loan requires a high degree of preparation and analysis
Often during the loan term EMIs or Equated Monthly Payments are not set and can vary because of a variety of factors. When considering taking a loan, you can use EMI calculators and measure your EMI calculation by taking into account various loan-related variables, including the amount of the loan, interest rate and tenure of the loan. These variables however do not remain the same and can change over time, resulting in changes in your EMI payments. This is particularly true for loans that have long tenures such as home loans, which are typically connected to interest rates based on the MCLR (marginal cost of lending rate).
Change in interest rate during the loan tenure
Loans may be offered at interest rates that are fixed, floating or hybrid. In the case of a fixed interest rate, the rate remains the same for the period of the loan and the repayment of the loan made (EMI) for the entire term is fixed. In floating interest rate loans, however, the interest rates over the term of the loan can change several times. These shifts may have a positive, negative or also have no impact on the loan EMI. A mixed interest rate with fixed and floating rates is used in hybrid interest rate loans. In the beginning of the loan repayment period, for a set number of years, a fixed interest rate is introduced and the interest rate ‘floats’ later in the tenure of the loan.
Prepayment of the Loan Amount
In most situations, lending institutions provide the borrower with pre-payment options in which the borrower can pre-pay a portion of the principal home loan sum outstanding in order to reduce the total interest burden. Not only does the pre-payment facility decrease the principal loan amount, but also the interest paid on it, thus potentially also lowering the amount of each EMI. The pre-payment facility, however, contains a penalty that ranges from one to five percent of the loan amount, especially if the interest rate for a fixed home loan is fixed. Therefore, before taking the loan, it is important to browse through the pre-payment clauses and compare the penalties imposed by various banks to reach the best deal. Prepayments may be done after a certain time period as stipulated under the terms and conditions given by the lender.
Change in Loan Tenure
If you can work out a new loan term with your loan provider or move to a new loan tenure with a new loan provider (such as a transfer of home loan balance), your EMI can increase or decrease accordingly. Changes in loan tenure can have a huge impact on your EMIs, so make a thoughtful decision after all the variables are considered and after using EMI calculators to identify the best possible EMIs. Compared to shorter tenures, the longer the loan term, the lesser the amount of the individual EMI payable. The loan is repaid earlier in the case of shorter tenures, and the cumulative interest taken out for repayment of the loan amount is smaller than longer tenure loans.
Loans with Flexible Repayment Options
Some loan providers provide flexible options for loan repayment that feature different EMIs. In step-up loans, as you advance along the loan tenure, you initially pay lower EMIs and subsequently the EMI payable rises. You have to pay higher EMIs at the beginning of step-down loans, which are reduced at a later level. For borrowers who are investing at the beginning of their career, step-up loans are a safer choice, whereas step-down loan options are beneficial for borrowers close to their retirement years. EMI repayment is an important part of a loan and when deciding the EMI sum that you are comfortable paying back, you take pains to prepare ahead. As you need to set aside a certain amount of your income per month, make sure you select an EMI that does not bring undue burden on your monthly budget. So make sure that before you make the final decision on your home loan, you calculate your repayment potential using a loan EMI calculator.
The primary criteria used in the home loan EMI calculator, car loan EMI calculator and personal loan EMI calculator function are similar – loan amount, interest rate and tenure. However, there are certain differences such as a down payment amount (not required for a personal loan), nationality (as there are differences in eligibility requirements for UAE citizens as compared to expats for home loans) and so on. The other key difference between the calculators is the maximum principal sum permitted as input, which is significantly higher for a home loan as compared to an auto loan or a personal loan
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