Home Loan EMI: In today's time, taking a loan for home, car or personal needs has become common. Now people take a loan from the bank for purchasing anything and get EMI done on that loan.

After getting EMI, the customer has to repay his loan in some installments. On taking a loan, the bank also charges some interest on it annually. But the biggest question here is how is the calculation of this EMI done.

Most people take EMI but are unable to understand the math of EMI. If you are also facing difficulty in EMI math, then let's understand it with an easy formula.

Home Loan EMI Calculation

When you pay the EMI of the loan, it includes both the principal amount and interest. According to the HDFC Bank website, EMI is decided under a special formula which will be of some type.

EMI = [P x R x (1+R)^N] / [(1+R)^N – 1] where P is the principal amount of the loan, N is the loan tenure (in months) and R is the monthly interest rate.

The monthly interest rate is calculated using this formula. R = Annual interest rate / (12 × 100).

For example, if the interest rate is 7.2% per annum, then R = 7.2 / (12 × 100) = 0.006.

P = Principal amount of the loan

N = Loan tenure (in months)

R = Monthly interest rate

Understand with an example

If a person takes a loan of Rs 10,00,000 for 10 years (120 months) at an annual interest rate of 7.2%, then his monthly EMI will be decided by this formula.

EMI = Rs 10,00,000 × 0.006 × (1 + 0.006)¹²⁰ / [(1 + 0.006)¹²⁰ – 1]. According to this calculation, a person will have to pay an EMI of Rs 11,714 every month.

If you want to calculate your EMI easily, then you can get an accurate estimate immediately by using an online EMI calculator, which will make loan planning easier.

The longer the tenure, the higher the interest

Most people take a long-term loan to keep the EMI amount low. But in this, customers have to pay more interest to the bank.

If you get a short tenure, then the EMI amount will be higher but your interest will be reduced to a great extent. But people can choose the tenure as per their convenience.