The EMI of a home loan plays a critical role in determining affordability. Experts recommend it is better to calculate the EMI before you apply for a home loan. Read on to know why?
The affordability of the home loans hinges on the EMI (equated monthly instalment) as this the amount you must repay the lender every month throughout the loan tenure. Therefore, you must choose the lender carefully so that you get the loan at an affordable interest rate. Getting a loan at an attractive interest rate will ensure that you can easily fulfil your repayment obligation without compromising your other regular expenses.
Let us understand why calculating the home loan EMI before you start the application process is important.
Helps you decide the loan amount
When you start repaying the home loan EMI, it may take away a significant part of the disposable income. Calculating the EMI beforehand using the EMI calculator can help you know the exact amount you must repay every month, and you can decide if it fits within your budget.
You can use the EMI calculator online, wherein you can enter the loan duration, loan amount, interest rate, processing fee, etc. The tool will immediately compute the applicable EMI. You can change the values in the calculator until you arrive at an EMI amount that is affordable. Thus, based on the EMI amount, you can decide the maximum loan you can avail of.
Helps you plan your repayment well
Once you know the exact amount you can afford to borrow and the EMI applicable, you can plan your finances accordingly and consistently repay the amount on time. You can review your monthly expenses and other important financial commitments and see where you can cut back to ensure that you don’t default on the EMI payments.
This also helps instil financial discipline, and you can set aside a fixed sum every month for EMI payment. Also, when you pay the EMI on time, you can avoid unnecessary costs like the penalty for missing EMI or bounce charges.
Choose the right loan tenure
Apart from helping you decide the loan amount, calculating the EMI in advance enables you to be prudent with the loan tenure. The loan duration has a direct impact on the EMI and the affordability. Using the EMI calculator, you can adjust the loan tenure and see how it affects the EMI.
If you can afford to repay higher EMI, you can apply for a home loan for a shorter duration ranging from 10-15 years. If you want to keep the EMI affordable, you can apply for a loan with a longer-term ranging from 20-25 years or more. Typically, lenders in India offer home loans for a maximum of 30 years.
Helps in choosing the right lender
When you compare the loan offers from different lenders, you must use the EMI calculator to know the exact EMI based on the interest rate and other charges. Thus, you get a clear idea about the EMI you must pay, and choose the right lender that offers the best deal.
Thus, calculating the EMI before you start the home loan application process has more than one benefit; it helps you take an informed borrowing decision and manage your repayments well.