Home Loan repayment and monthly installment
Equated Monthly Installment or EMI can be defined as a fixed payment amount levied by a lender from a borrower at a specified date of each calendar month. According to the loan, the monthly installments are calculated to pay off both interest and principal each month, so that over a specified time period, the loan is paid off in full.
(L x i) X (1 + i) ^ N
Home loan EMI = —————————–
{(1 + i) ^ N} – 1
Where:
| L = Loan amount | i = Interest paid | ^ = to the power of | N = loan period in months |
So now let’s try to use this formula with an example. If the loan is Rs 1 Lakh and the rate of interest is 11 percent per annum, and the tenure is 15 years
i = 11 percent / 12 = .11/12 = .00916
Home Loan EMI = (100000 x .00916) x ((1+.00916) ^180) / ([(1+.00916) ^180] – 1)
= 916 X (5.161846 / 4.161846)
EMI = Rs 1,136
There are several types of loans where lender creates a periodic payment table for the borrower, generally over the course of several years with the goal of retiring the loan.
Normally the borrower EMIs differ from variable payment plans, in which the borrower is able to pay higher payment amounts at his or her discretion.
In case of home loans, pre EMI is a part of the EMI which is defined as simple interest that one pays on the loan amount till the EMIs start. This is usually paid till you take possession of the home. EMI is an unequal combination of the principal and interest.
A major part of the EMI comprises of the interest for initial years of the loan. Loan matures as the principal gets paid and the outstanding loan amount reduces.
Different banks have different rate of interest. The present lending rates of banks such as SBI, HDFC and Axis bank are 9.95%, 10.15% and 10.50% p.a. respectively.
Within last three years Reserve Bank of India (RBI) hiked its key lending rates several times to control inflation. If there is more than a one percent point cut in the RBI’s repo rate, the rate of interest will be inversely affected.
RBI has progressively cut the repo rate in recent times. The current lending rate at which RBI lends to banks stands at 7.25% p.a.
Hence, the lower repo rate should bring down banks borrowing costs and in turn, forcing them to slash lending rates to borrowers.
According to a banker, EMIs will start falling only when banks are able to cut deposit rates which is the interest that you earn on the money parked in savings and fixed deposits with banks.
The growth in bank deposits remained stagnant for a certain period now, as people preferred other assets such as gold to park their money.
Inflation rate of more than 10% and fixed deposit interest rate of 9% means the returns on your bank deposits are actually negative.
Related Real Estate News:
E-stamping: Registering large volumes of property in Gurgaon
NCR introduces new investment hub : New Noida
Bank loan, EMI, EMI rate, home loan, home loan EMI, Indian real estate, Loan, loan in india, Pre EMI, Realty News
