When you borrow a loan from a lending institution, it is only natural that you have to repay it within a stipulated time.

Home loans are no different in this regard. Therefore, home loan EMIs or equated monthly instalments refer to the fixed monetary amount that you must pay to your lender every month to service your ongoing loan.

The EMI for a home loan relies largely on three factors:

• The loan principal (How much you borrow)
• The interest rate as applicable (as levied by the lender)
• Loan tenure (The stipulated period during which you have to repay the principal along with interest)

Here is all you need to know about these three factors for a housing loan.

Components of Home Loan and Home Loan EMI:

Loan Principal

Home loan principal refers to the portion of your property’s price that banks or NBFCs finance. In most cases, this tends to range between 80% and 90% of your home’s cost.

For example, if you buy a house worth Rs.1 crore, you can avail up to Rs.80 lakh or Rs.90 lakh from the lender as a housing loan. You must bear the remaining portion as a down payment toward owning the home in question.

The loan principal is a crucial factor when it comes to using a housing loan EMI calculator. Higher loan amounts borrowed increase your EMIs and vice versa.

Home Loan Interest Rates

Banks charge a certain interest rate on every home loan. This rate determines the amount you would need to pay beyond just the home loan principal. Interest can be calculated in one of two ways - simple or compound.

For home loans, Indian lenders rely on compound calculations to determine the interest amount you are liable to bear.

Loan Tenure

Tenure refers to the time during which you must repay your home loan along with interest accrued.

Since home loans are sizable in nature, the adjoining tenure tends to be considerable as well. Depending on your lender, the maximum tenure can range between 20 and 30 years.

However, you can pick a shorter term as per your convenience.

In EMI calculations, you will perceive that increasing the repayment tenure results in a drop in your monthly repayment liabilities.

Therefore, if your chosen loan’s EMI seems too high, as displayed by the calculator, you can increase the tenure and check again.

While a home loan EMI calculator certainly makes things easier, one can choose to calculate his/her EMIs manually as well.

However, to do that, you must know the exact EMI calculation formula.

Here it goes!

EMI = {P x R x (1+R)^N} / {(1 + R)^N – 1}

Doesn’t make much sense, does it? Well, let’s try to understand the equation’s factors!

Here P stands for loan principal and R denotes the interest rate divided by 100. N is the number of EMIs you will have to pay. For instance, if your loan tenure is 10 years, then N would be 120.

Let us use an example to understand the calculation better:

Arun borrows Rs.50 lakh as a housing loan at 12% interest for a tenure of 20 years. What will be his EMI for the loan?

Placing the values in the formula above, we get –

EMI = Rs.{5000000 x 0.12 x (1 + 0.12)^240} / {(1 + 0.12)^240-1}

EMI = Rs.55,054

As you can see, such calculations tend to be complex and time-consuming.

Using a home loan calculator helps you to do away with this cumbersome process, which is why most borrowers tend to take advantage of these tools. 

The following are some of the reasons why you should use an EMI calculator over manually calculating your EMIs, especially when dealing with long-term loans, such as housing credit.

• Swift calculations – Using a calculator is always faster when it comes to determining your EMIs. All you have to do is enter the relevant details in the specific fields, and you get the results in microseconds.
• Errorless calculations – Unlike manual calculations, using a home loan EMI calculator will always yield accurate results. Calculating the EMIs manually always leaves a room for error. Even a small mistake, in this case, can compromise your understanding of monthly liabilities from this credit.
• Helps plan loan repayment – Since you are using the calculator before availing a housing loan, you can effectively plan your finances after determining your EMIs. Moreover, you can alter the various factors to arrive at an EMI amount which is affordable for you. Try lowering your principal amount or hiking your repayment tenure on the calculator to decrease EMIs.
• Limitless calculations for free – You can use EMI calculators as many times as you wish - that too, completely free of charge. This makes such calculators ideal tools for comparison of various home loans on offer.

A home loan amortization schedule is nothing but the division of monthly EMIs into a table. Along with the EMI amount and month, the table also displays the breakdown of instalments into principal and interest components. While the EMI amount remains the same every month, the proportion of principal and interests tend to change as the repayment progresses.

After studying the amortization schedule, you will come to realise that during the first half of your EMI payments, the interest portion is greater than the principal portion in each instalment. However, towards the end of loan repayment, the interest portion is minimal, while the principal forms the majority of your EMI.

Therefore, with the amortization schedule, you can check how many of your EMIs are still left. You can also determine your total interest and total principal liabilities remaining for the loan.

In India, you can choose from three distinct types of EMI servicing in case of housing loans. These are:

• Pre EMI - Pre EMIs are prevalent for home loans where you do not receive the entire loan amount through a single payout. Instead, your lender disburses smaller amounts at regular intervals. This option is available to individuals looking to buy a property under development or constructing their own home. In such cases, the time between your first EMI payment and the complete disbursal of home loan may range up to two years. Pre EMIs are designed to act as a form of repayment within this substantial gap.
• Tranche EMI - In this form of home loan EMI, you only need to pay the minimum interest amount. However, you can also choose to pay the full EMI before receiving the entire principal sum. By paying the principal portion along with interest, you can effectively reduce the principal outstanding for the housing loan in question. Doing so can reduce the loan tenure as well.
• Accelerated EMI Payments - Since home loans tend to have long repayment tenure, you can expect an increase in your income during this period. With increased income, you can also afford to pay higher EMIs to complete repayment faster. Therefore, if you have surplus cash or bonus available, accelerated repayment can reduce tenure and interest payments on the loan.

Now that you know more about home loan repayment options, here is all you need to know regarding the documentation process for home loans. 

To complete your home loan application, you need to submit a few documents to your lender. Listed below are some of the documents necessary for home loans:

• Filled in home loan application form.
• Identity proof – Passport, Aadhaar card, Voter ID, PAN Card and driving license are acceptable proof of identity.
• Passport-sized photographs
• Age proof – Birth certificate, PAN card, passport, bank passbook, Aadhaar card and driving license are valid evidence of your age.
• Address proof – Bank passbook, Aadhaar card, utility bills and voter ID are some of the documents whose photocopies you can provide in this regard.

Income documents for salaried individuals

• Letter from current employer
• Form 16
• Last two months’ payslips
• IT returns for the past 3 years
• Promotion or increment letter

Income documents for self-employed individuals

• Last three years ITR
• Profit and loss statement and balance sheet for the business
• Business license details
• Business address proof
• Bank account statement for the last 6 months
• For doctors, consultants and others, furnishing a license of Professional Practice is also mandatory

Property documents

• Detailed estimate of the cost of construction of your house, if you are borrowing to build your home
• NOC from your builder
• For ready-to-move-in properties, you must provide an occupancy certificate
• Original sale deed or stamped agreement of sale from the builder/owner
• Property tax receipts
• Copy of the building plan, in case of flat purchase
• Receipts of down payments on the property
• Bank statements or receipts proving payment to seller or builder

Depending on your lender, exact requirements may vary. However, the list above is indicative of most documents, which you may need to furnish while availing such a secured loan.

Home loan EMI tends to be significant, which is why the Indian government allows certain tax relaxations for borrowers repaying such loans.

There are seven types of tax reprieve for these borrowers:

Tax Deduction on Home Loan Interest Payments - Under Section 24, you can claim a tax deduction of up to Rs.2 lakh from your yearly tax payments if you are servicing home loan interests. To avail maximum savings, yearly interest payments must be equal to or more than Rs.2 lakh.

Tax Deduction on Properties Still Under Construction - While you cannot claim deductions while a property is in development, you are allowed to claim these deductions post the completion of your home, through five equal instalments. Nevertheless, the maximum deduction allowed is limited to Rs.2 lakh.

Principal Repayment Deduction - Under Section 80C, you can claim a tax deduction on principal repayment of home loans as well. The maximum yearly rebate under this category is limited to Rs.1.5 lakh only.

Deduction for Registration and Stamp Duty Charges - Home loan customers are also eligible for a tax deduction on registration and stamp duty charges of the property as well. You can reduce your tax liability by up to Rs.1.5 lakh under Section 80C. However, this is a one-time deduction, applicable only on the year when these charges are incurred by a taxpayer.

Joint Home Loan Tax Deductions - If you avail a home loan jointly with another family member, each borrower is eligible for up to Rs.2 lakh tax deduction on interest payments and Rs.1.5 lakh on principal payments for the same loan.

Section 80EEA Deductions - If your home loan was sanctioned between April 1, 2019, and March 31, 2020, and your property’s stamp value is limited to Rs.45 lakh, you can take advantage of this provision. With this section, you can claim additional deductions of up to Rs.1.5 lakh in a financial year.

Section 80EE Deductions - Under this section, home loan borrowers are eligible to avail additional tax rebates of up to Rs.50000 a year, if they satisfy the following criteria:

• Availed the loan between April 1, 2016, and March 31, 2017.
• The loan amount is equal to or less than Rs.35 lakh.
• Property value is equal to or less than Rs.50 lakh.
• The borrower does not own any other property.

These provisions should help reduce home loan repayment burden significantly.

Still, before you choose a particular lender or offer, ensure you use a home loan EMI calculator. It should prevent you from overburdening your finances to the point where repayment becomes problematic.