Buying a home is synonymous for many with taking a home loan. And a home loan brings with it the need to plan and execute home budgeting with care and responsibility. When you take a loan, it has to be paid back with interest via EMIs. The ICICI bank home loan calculator will help you calculate what kind of EMIs are applicable to the loan that you plan to take. How you can use it to plan the repayment is what we will discuss below:
Important Points to Note about and EMI
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An EMI is an equated monthly installment. You pay the same amount every month, but the composition of the EMI is different every time. It is calculated using a standard formula across all lending institutions. The structure of the EMI has one component of the principal and another component of interest. Since the interest is calculated on the outstanding balance, it reduces with every payment made. With this reducing component, the principal component starts increasing.
How Can You Plan the EMI?
The EMI should be fixed at an amount that you can comfortably take out from your income every month without affecting your regular household expenses and some money kept aside for emergencies. This amount will also depend upon the amount that you wish to take as loan and the term of the loan. You can adjust these in the ICICI Bank home loan calculator to concur with your EMI. Do not overburden yourself because if you are unable to pay the EMIs on time, you could lose your home to the lending authorities.
How Is the Calculator Used?
The ICICI loan calculator needs the input of three variables: the Loan amount, the rate of interest and the tenure for repayment. Once you enter the variables, it will immediately tell you the value of your EMI as well as the total amount of interest that you would be paying with that particular combination of the variables. The variables and their effect on EMI is explained in detail below.
1. The Loan Amount
The loan amount depends on the price of the property and your eligibility. The ICICI home loan eligibility requires INR 20,000 as the minimum salary to be drawn by the applicants or co-applicants to get a loan of up to 80% of the property value. Again, this depends on the monthly income and has an upper limit related to that. This is so as the income will decide your repayment capabilities. A higher loan amount has a higher EMI attached to it.
2. The Rate of Interest
The rate of interest charged will depend on various factors, including the gender of the main applicant. ICICI home loan interest rates are slightly lower for women. The main factor affecting the rate is the loan amount. A higher loan amount attracts higher interest. Your credit score also has a role to play.
3. The Tenure
The maximum tenure for a home loan is 30 years. A longer tenure means smaller EMIs, but they also mean a larger amount of interest paid on the actual value of the house. When you use the ICICI Bank home loan calculator, you can get a good idea of what percentage of repayment is likely to be the interest component. There is always an option of prepayment or part-payment of the loan, which can help you to recalculate or reschedule your EMI plan. You can choose to reduce the tenure or reduce the EMI by making a pre-payment when you have excess funds. The prepayment should be equal to or more than one monthly installment.
Breakup of the EMIs
As mentioned earlier, the EMI has two components. The breakup of the components can be easily read in an amortization schedule. This table details the EMI and its components for every scheduled payment and it also tells you what the balance payable principal is after the payment of that particular installment. The interest for the next installment is calculated on this balance.
Through this schedule, you can clearly see how the interest component reduces with the reducing outstanding balance. And as the EMI amount is fixed, you can also see the principal component increasing.
The EMI and hence the schedule of repayment followed across the banks and other lending institutions is similar to the formula followed by all is the same. It could vary if the rate of interest changes.
How Does Prepayment of Loan Work?
You can make a part payment whenever you have excess funds. When you make part payments on the loan, the outstanding balance reduces, which, in turn, reduces the interest rate charged on it. With the EMI staying the same, the reduced interest component results in a shortened tenure and the loan gets paid up faster.
Tax Benefits from EMI Payments
The Indian nationals can avail income tax benefits on the interest and principal paid through EMIs of a home loan. The ICICI home loan tax saving calculator can help you calculate your tax savings over the years that you take to repay the loan.
The planning for an EMI beforehand is helpful when you take a loan as you do not put pressure on your pockets and hence are saved from undue stress. If you do not take this step of working out a reasonable EMI and hence an affordable loan, you could be heading towards ill health and strained relationships. So, to enjoy a happy home, plan ahead.