Mortgage loans have for long served as a critical source of high-value financing for many individuals. They have thus acquired a significant share of the total retail loan segment extended to borrowers across various profiles.
However, as mortgage loans are long-term credits with repayment tenor extending up to 20 years or more, they create a significant burden on one’s finances over time due to a fixed liability creation. It is thus wise on a borrower’s part to assess such fixed monthly outgo beforehand and decide on the mortgage loan accordingly.
Various financial institutions bring mortgage loan calculators which help borrowers to make such decisions efficiently. So, let’s take a look at how these calculators work and how they can help effectively in making decisions regarding advances like a home mortgage loan. Nevertheless, it is essential to first understand what these calculators are.
Mortgage loan calculators – An overview
A mortgage loan EMI calculator is a critical financial tool that lenders offer to help individuals assess how much they can typically borrow so as to keep the monthly repayment installments within affordable limits. These calculators allow you to not only estimate the EMIs but also other essential values that can have an impact on your finances in the long run.
Thus, with a mortgage loan calculator, you can compute the following values conveniently.
- EMI – It determines the fixed monthly outgo that you have to bear until the end of your loan tenor towards the repayment of the loan. The amount is decided based on the lender’s amortization schedule, and includes both principal and interest components.
- Total amount payable – It is a sum total of principal plus interest that you will end up paying by the tenor’s end.
- Total interest payable – It represents only the interest amount in total that you will bear during the loan tenor over and above the principal amount borrowed.
Now, take a look at how a mortgage loan EMI calculator works.
Working of a mortgage loan calculator explained
Before you apply for a mortgage loan like a loan against property, make sure to use the EMI calculator, which will help you arrive at a suitable loan amount and tenor that keeps your monthly repayment liability within check.
The calculator requires you to input three specific values to arrive at the results mentioned above. They include the following:
- Principal – It is the total loan amount you seek to avail to fulfill your upcoming funding needs.
- Interest rate – It is the applicable rate of interest at which your lender provides the loan.
- Tenor – It is the duration for which you would avail the loan amount and within which agree to repay the loan liability in full.
While the applicable rate of interest depends entirely on the lender, choice of the other two variables remains at the borrower’s discretion. A change in the two values can impact the respective results so obtained.
Thus, keeping in mind the following two tweaks, a borrower can easily arrive at a suitable loan amount and a convenient tenor before applying for a loan against property.
- A change in the loan amount directly impacts the EMI. Thus, you can increase or decrease the loan amount to adjust the EMI as per your repayment capacity.
- As against the effect of loan amount adjustment on EMI, a change in the tenor impacts your fixed monthly outgo inversely. Meaning, an increase in tenure decreases the EMI and a decrease in this value increases this installment accordingly.
However, you must also take care of the impact of these adjustments on the total interest payable and decide accordingly.
Using a mortgage loan EMI calculator helps you plan your finances and make necessary adjustments to keep your debts within budget. Additionally, before you apply for a mortgage loan, you also meet the simple eligibility criteria of your lender to improve the chances of approval.