This article shows a handy ready reckoner for home loan EMI amounts for all tenures and interest rates along with the amount of principal and interest to be paid.
This article shows a handy ready reckoner for home loan EMI amounts for all tenures and interest rates along with the amount of principal and interest to be paid.
This article is a part of our detailed article series on the concept of home loans. Ensure you have read the other parts here:
This article shows you the benefits due to interest saving when you make a part-payment to your home loan. Your loan duration also reduces due to the pre-payment.
The bank gives a home loan to own the property while you use it until you pay back the loan via EMIs. An Equated Monthly Instalment plan (EMI) is a standard way to pay off a loan by making a fixed payment monthly that includes both interest and principal in the same amount.
EMI = Principal + Interest
In each EMI, the split of the interest and principal changes since the interest is based on the outstanding loan balance at that point and the rest of the EMI is principal. As the chart shows, the interest part drops off with time, and the rest is the principal. The actual numbers in the chart relate to a ₹50 lakhs home loan taken at 8% for 25 years. The EMI is ₹38,591. The down payment amount is ₹12.5 lakhs.
You can test the numbers using this calculator:
As you pay back the loan, your ownership share in the house will increase in the same way. At the point of taking the loan, you own 20% of the house (12.5 out of 62.5, of which 50 is the loan). The bank owns 80%. As the loan is repaid, you own more and more of the house as the principal is paid off. This is the concept of building equity in an asset. Equity is the part of the asset you own after subtracting the part that the bank owns.
Home equity value = Current home value - Outstanding loan balance
Once you build equity in your home, that has additional benefits:
You can take a top-up loan in case you need money for some other purpose like home improvement or any other reason.
The more you will get to keep if you sell the house.
We break down the home loan rate into its major components to see where the fluctuations come from.
Repo rate: This rate is decided by the RBI. Home loan rates will move up and down as soon as the RBI revises the repo rate.
The latest repo rate is 6.5%. This rate was last reviewed by the RBI on 08 Feb 2024.
Spread: This is an additional rate on top of the repo rate that essentially captures the profit the bank can make off this loan relative to the deposits it offers to customers. This rate is generally revised every three years but will vary from bank to bank.
Premium: An extra value for some specific customers. For example, SBI adds another 15 bps for non-salaried customers or it will depend on the CIBIL score of the borrower. This value is also revised periodically, like every three years.
In the sections below, we will show the EMI for a ₹1 lakh outstanding loan balance. You can simply multiply the numbers in the tables with your actual loan balance to find your EMI number.
EMI per ₹1 lakh of outstanding balance for below market rate loans
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EMI per ₹1 lakh of outstanding balance for above market rate loans
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This post titled How much EMI do I have to pay for my home loan? first appeared on 29 Sep 2023 at https://arthgyaan.com
