Everything you need to know about Collateral Loans in India

If you are planning to buy a property or use your existing property as collateral for a loan, you might wonder how to calculate the equated monthly instalment (EMI) you must pay. EMI is the fixed amount you pay monthly to repay your loan over a specified period. It has two components: the principal amount and the interest amount.

Let’s understand how to calculate your loan EMI using a simple formula, an online mortgage loan EMI calculator, and an Excel sheet.

How to Calculate Mortgage Loan EMI Using a Formula?

The formula to compute your commercial loan EMI is as follows:

EMI Amount

= [P x R x (1+R) ^ N] / [(1+R) ^ N-1],

Here,

P means the principal sum that you borrow
R means the monthly interest rate (annual interest rate divided by 12 and expressed as a decimal)
N is the loan tenure in months

For example, if you borrow Rs 20,00,000 at an annual interest rate of 10% for 15 years, then your EMI will be:

EMI = 20,00,000 0.0083 (1+0.0083) ^ {180} / [(1+0.0083) ^ {180} – 1]

EMI = Rs 21,594.95

How to Calculate Mortgage Loan EMI Using an Online Calculator?

If you find the formula too complicated or tedious, you can use an online mortgage loan EMI calculator to do the math for you. Nowadays, every home loan lender and loan aggregator offers this free and easy-to-use EMI calculator on their websites. All you need to do is enter the loan amount, interest rate, and tenure, and the calculator will show you the EMI amount, total interest payable, and total amount payable.

How to Calculate Mortgage Loan EMI Using an Excel Sheet?

Another way to calculate your mortgage loan EMI is by using an Excel sheet. Excel has a built-in function called PMT that can compute the periodic payment for a mortgage based on continuous payments and a stable interest rate. The syntax of the PMT function is:

=PMT (rate, nper, pv, fv, type)

Where,

rate is the interest rate per period (monthly in this case)
NPER is the total number of periods (months in this case)
PV is the present value or the principal amount
fv is the future value or the balance after the last payment (optional, default is 0)
Type is 0 or 1, indicating when payments are outstanding (0 for the end of the term, 1 for the beginning of the term; optional, default is 0)

For example, if you use the PMT function in Excel for the same loan scenario as above, you can enter the following formula in any cell:

= PMT(0.1/12,180,2000000)

This will give you a negative value of – Rs 21,594.95, which means that this is the amount that you pay out every month. To get a positive value, you can either change the sign of the formula or enter a negative value for PV.

You can also use other Excel functions, such as IPMT and PPMT, to calculate the commercial property loan interest rate amount and principal components of each monthly payment separately.

Benefits of Using a Mortgage Loan EMI Calculator

Using a mortgage loan EMI calculator has many benefits, such as

Simple: Compiling mortgage loan calculations can take hours. But with a calculator, you can compute all the details in seconds using an online mortgage loan EMI calculator.

Accessible anytime: You don’t need to visit a bank branch or consult a financial advisor to get an estimate of your EMI. Simply open your smartphone or tablet, ensure you have a prompt internet connection, and access the calculator on the go.
Helps in budgeting: Knowing your EMI beforehand can help you plan your finances better and avoid any financial stress. You can also adjust your loan amount, interest rate, and tenure according to your income and expenses. This way, you can choose a loan that is affordable and comfortable for you.
Quick comparison: Using a mortgage loan EMI calculator, you can compare loan options from different lenders and see which offers you the best deal. You can also check the total interest payable and total amount payable for each loan option and choose the one that saves you the most money in the long run.

Conclusion

Calculating your mortgage loan EMI is not as difficult as it may seem. You can use a simple formula, an online calculator, or an Excel sheet to do the calculations easily and accurately. By knowing your EMI beforehand, you can make an informed decision about your loan and manage your finances better. You can also use a mortgage loan EMI calculator to analyse different borrowing options and prefer the one that serves your needs and budget.