Sunday , June 4 2023

# How to calculate EMI?

How to calculate EMI is a big question comes to our mind when we have to take decision on how much loan we can bear based on our monthly income.  We search on internet for EMI formula and do some calculation on paper or Excel to find the Equated Monthly Interests (EMI). However I can say there is lot more to understand regarding a home loan apart from the EMI calculation. Fixing of right value of Loan, EMI and years for your Home loan is very important. Partial payment of home loan and its guidelines. Everyone wants to repay their home loan as soon as possible therefore they do the partial payments time to time. Nowadays banks are not charging any fee for the partial payment of Home loan. In that case a question comes in mind that whether the EMI will change after partial payment. Here i want to clear you that the bank will not change the EMI but will reduce the number of EMIs ( how partial payment is adjusted to reduce nos of EMI is explained below). Therefore it is  always advisable to take home loan for higher duration (more years) to keep lower EMI. Everything will be clear after going through EMI calculation detail. An online EMI calculator is given at the end to find the EMI as per loan amount and tennure of your Home loan in simple and easy way. This calculator can also be used as emi calculator for car loan, or personal loan interest calculator.   However to do a detail analysis to find the right EMI and decide the periods of Home loan, an  Excel based EMI Calculator is also given. This is most useful tool to actually decide the EMI, based on your capability of doing partial payments toward Home loan. It is also a short of Home loan worth analyser, which helps in deciding how much loan should be taken for what period to minimize the cost of Home .

## What is EMI?

EMI stands for Equated Monthly Installments. It is the fixed monthly payment made to any financial institutions such as Bank to repay your loan. There are two components of an EMI, one is Principal and other is Interests. Principal is the total Loan amount that bank gives you, and Interests is the charges that bank take during the tenure of loan. Therefore the value of EMI depend upon the Principal, Rate of interest, and tenure of Loan.

### The formlua for EMI calculation

Where,

=Principal or the Loan amount
= Rate of interests  on monthly basis
(If Home Loan interest rate is 9.55 % then

= Tenure of Loan in nos of months (for 20 years.

For Example:
For Loan Amount=500000 and Tenure=20 years, suppose Home Loan Interest rate=9.55%

P=500000
n=240
r=0.00795833

EMI=5000000*0.00795833. (1+0.00795833)^240/((1+0.00795833)^240-1)=46770

## How to calculate Principal and Interest component of EMI?

EMI has two component Principal (P) and Interests (I). During starting years Interests component is very very large as compared to the Principal component. Every months Principal amount reduces but with a small amount. However after certain years when the Principal component reduces considerably the Interest component will be lower then the Principal.

Where,
= Balance Principal/ Remaining Principal.
= Rate of interests  on monthly basis

From above Example
First Month EMI=46770, BP=5000000, I=5000000*0.00795833=39792, P=46770-39792=6978
Second Month EMI=46770, BP=5000000-6978, I=4993022*0.00795833=39736, P=46770-39736=7034
similarly for other months….

## How To Calculate EMI after Partial Payment

Partial Payments are always subtracted from the Principal amount already paid to bank, and the interests is calculated in the remaining Principal amount.  The EMI value remain the same only the nos of EMI will reduce. Suppose from above example somebody wants to pay 500000 after five years and he has paid already paid 545231 in principal through EMIs of 60 months, then the remaining principal amount in 61st month will be (5000000-1045231=3954769). The interests component of 61st EMI will ( 3954769*0.00795833=31473) and the principal component will be (EMI-31473=15297).

Nowadays bank give facility to do n number of partial payments without paying extra charge. Therefore keeping higher EMI for lesser numbers of periods is not advisable. Do not keep very low EMI as well, this may increase the overall cost of your Home because Its human nature that money saving (for Partial payment) is always difficult if there is no compulsion.

This excel based home loan EMI calculator is a multi-utility tool to calculate EMI along with its principal & interests components for every month. There is option of giving partial-payment in lumpsom or monthly and get the reduction in nos of EMI. At a time three cases can be compared based on selected tenure,period and loan amount to better decide how much loan to be taken and for how much time period. Finally there is option to find the worth of your home if you want to sell after a period of time and it will give the right selling price. If you love the tool or want more option kindly leave  message in comment box.

Excel Based EMI Calculator
Home-Loan-EMI_2.xlsm
89.5 KiB
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