Deciding home loan amount depends on the affordability of EMI. Every bank will first check how much EMI can the applicant afford and on the basis of this loan amount will be decided and the same will be sanctioned. Thus it is advisable that the applicant should check the EMI amount to know how much amount of home loan he/she is eligible to get from banks or NBFCs, before applying.

Aspects affecting EMI

The below mentioned are the three main factors which will help in deciding what can be the EMI amount for a loan.

  • Income:

Income of every applicant plays a very crucial role. Usually banks will render loan such that the EMI amount is less than 40% of the monthly income. This is to make sure the applicant has decent amount for all other expenses. Even though it is good to be optimistic about the income rise of the individual, due to inflation, job security and emergency requirements it will not be considered while deciding loan amount or EMI. The EMI amount should be just 40% of your monthly income and at least 15% of your income should be kept aside for saving purposes.

  • Changes to Rate of Interest:

Though low interest rates on home loans might attract you to take huge loan amount, it is not advisable to do so and also try to keep certain portion of your income as savings and emergency funds. Also deciding between fixed and floating interest rates will take a call on the EMI amount, if you choose floating interest rates the interest percentage will be low and thus the EMI amount will also be comparatively low. With floating rate of interest, the applicant should be ready to pay high EMI in coming years if the rate of increases as per market conditions.

  • Expenses:

While deciding expenses, it is very important to calculate the present expenses along with anticipated future expenses. Future expenses will be usually medical emergencies, children education, maintenance expenses, wedding, vacations, festivals and other such occasions. High inflation can also be a reason for increase in the expenses factor. Thus make sure you have enough for your necessities while you are dreaming to own a house.

Why Should You Calculate the EMI?

  • Helps in determining what should be the loan amount to be borrowed
  • Assists in checking eligibility and interest percentage
  • It is essential to calculate the tenure of the loan
  • To check affordability
  • To compare and pick the best bank that can offer loan with additional benefits
  • To decide between fixed and floating rate of interest
  • Getting home loan will be easy and fast if EMI amount is decided
  • Leads to less documentation and quicker

Formula for EMI Calculation

E = P x r x (1+r)^n/((1+r)^n – 1)

  • E = amount that has to be paid every month; basically called as EMI.
  • P = amount for which loan is taken
  • R = rate of interest that is applicable on the loan amount however it is calculated on once-a- basis instead of annual interest rates. The formula for this is (annual interest/12) x 100.
  • N =duration of loan in terms of months. So if you select a term of 3 years, n will be 36.

The EMI calculators for home loan are different from other types of loans. Thus when you are planning to apply for a loan, decide the need and make use of a platform like Finance Buddha to check the eligibility and EMI amount and accordingly apply for loan. Though there could be slight variations on the EMI amount from individual to individuals, EMI calculators will help you in ascertaining approximate figures of the monthly installments.

Example of EMI Calculation

Below table will help you in understanding how EMI and interest is calculated on a loan amount of 1,00,000 with 12% interest rates and the tenure of the loan is 12 months.

#Month Outstanding amount Interest paid this month Principal paid this month EMI Payment for this month
1 100,000 1,000 7,885 8,885
2 92,115 921 7,964 8,885
3 84,151 842 8,043 8,885
4 76,108 761 8,124 8,885
5 67,984 680 8,205 8,885
6 59,779 598 8,287 8,885
7 51,492 515 8,370 8,885
8 43,122 431 8,454 8,885
9 34,668 347 8,538 8,885
10 26,130 261 8,624 8,885
11 17,507 175 8,710 8,885
12 8,797 88 8,797 8,885


Make use of this information to before deciding to take a home loan. Do keep in mind loans are liabilities and thus even a penny saved is equal to a penny earned.