Full EMI Vs Pre EMI

EMI is a concept that has emerged to make people buy what they wish for without much of waiting. Like a coin has both sides, EMI concept also has both advantages and disadvantages.  What you should be aware of is, it is not a free meal but needs a lot of research and understanding while making a choice between Pre-EMI and Full EMI as a mode of home loan repayment. 

What is EMI?

EMI or Equated Monthly Instalment is when the borrower starts repaying the principal amount from day one. This means they start chipping away the loan amount leaving a little amount to be repaid after the construction and possession of the property.

EMI Advantage

  • First in the list, it allows you to buy what you wish/desire for.
  • It gives you an option to decide the amount you want to pay in EMI and tenure for it
  • It helps in reducing the tax burden
  • Easy on wallet as you make the payment in parts.

Disadvantages of EMI

  • It’s a long-term debt.
  • When you calculate the amount you pay to the lender, it is more than the double the value of the property.
  • The interest rate keeps changing and you should have a constant check on it.

What is Pre –EMI?

The EMI is comprised of the Principal amount and the interest rate. The Pre-EMI is the interest portion of the disbursed loan amount and is paid until the full dispersal of the loan amount, which in simple words means, paying in portions. Pre-EMI is an option out there for any under-construction property. The loan amount is released according to the stages of completion of the construction. Hence, you need to pay the loan accordingly. Which means the EMI is calculated only on the disbursed loan amount and not on the full loan amount.. In a way, it lowers the burden of the pocket.  

full emi vs pre emi_loanyantra.comFor instance, you have taken a loan of amount Rs.20 lakh and Rs.4 lakh is disbursed first as a part of your Pre-EMI scheme then the EMI is calculated on Rs.4 lakh which is considered as interest but not as principal repayment. The actual principal loan repayment starts when the loan amount of Rs.20 lakh is disbursed.

Advantages:

  • No need to pay EMI while the property is getting constructed.(If you choose no pre-emi option).
  • Customers are free from price appreciation which during construction period can go up to Rs.500 per sq ft. by the end of project completion.
  • Boon for salaried people as it doesn’t burn a hole in their pocket
  • When a builder wants working capital during the construction process, he offers the no pre-emi scheme, which means it is your market and try to grab a best offer.

Disadvantages:

  • Cross verification is important as the property might be disputed one
  • Watch for delayed construction and possession period
  • Builder often charges some extra amount of Rs.200-300 per sq.ft.
  • Any principal prepaid by a person before he/she gets the possession of the property is not deductible under Income Tax Act. This wipes the benefit of Section 80 C which allows the deduction of a maximum of Rs.1, 50,000 lakh.

Comparative Analysis of Pre-EMI and Full EMI

Both the EMIs have the best to offer and meet different needs of a different section of people. For example, pre-EMI works the best for salaried people or for those who are living in rented apartment so as to manage both the rent and EMI. But at the same time full EMI saves a lot of time and helps to pay off the loan in the defined time period. So, how to decide which scheme will be the best for you?

Here are some key determining factors while choosing either of the two options:

 

Full EMI

Pre-EMI
If you want to get the tax benefits If you have low cash flow at the time you decide to buy a house
If you want to be debt-free early If you had taken the property as investment  and reselling is an option you look after the completion of the  project.
If the project time-line  is too far and if it dealys the repayment of principal loan amount. If you are able to invest the difference amount  of  EMI and pre-EMI , such that the returns are higher and will help you easily to pay the principal amount when the actual loan starts.
If the active investment doesn’t appear feasible If your money has to be used for some other immediate and urgent needs.

 

Cross-check your need and requirement with the above mentioned points and whichever payment fits better in your pocket, go ahead with that.

You can also consult Loanyantra for your home loan need. Our dedicated team of professionals thoroughly analyse your loan requirement and your financial portfolio before suggesting you an option. Loanyantra is an easy way where you handover us your requirement and we will give the right answer to your query. Get connected with us to know more about our services.

 

How to calculate EMI manually.

Calculate EMI manually

Whether buying a car, buying a new apartment or affording overseas education to children, loans have become an integral part of our life. When we borrow a loan the most accepted methods of repayment is through EMI or Equated Monthly Instalments. It is the small amount including both the principal and interest, to be paid towards a loan we opted for. During the initial stages the interest alone constitutes the major part of the EMI but as we progress in the payment, during the course of time, the portion of interest is reduced and the principal amount is added to it.

EMI can be opted for both fixed and variable interest rates. It comprises of two major variable components, commonemi calculation manually_loanyantraly known as;

  • Principal Amount borrowed
  • Interest rate for the loan
The Number Game

For every loan that you borrow the EMI is calculated based on certain parameters like Interest rates, loan amount and the tenure of repayment for the whole loan amount. The mathematical formula for calculating EMI can be derived as:

DID YOU KNOW?

While you borrow a loan, you are given an option to keep either the tenure or the EMI constant. While one of the above parameter is kept constant, the other parameters will be reduced. i.e., if you opt to keep the tenure as a constant value, then the EMI will be reduced. Or if EMI is paid at a constant rate then the tenure of the loan is reduced.

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Advantages of Prepayment or Part Payment – We name it, The Holiday Plan

To prepay the entire amount early in the tenure or in the later stages is always the best suggestion as you can enjoy the advantages of early closure of your loan, either home or personal.

Prepayment of entire amount might be a bit tricky, part payments can be planned, though. So if we work out on this, we get really a fair picture how advantageous it really is.

Recently RBI had directed banks to stop charging customers for prepayments. Definitely this is one greatest advantage to consider. It is the surely recommended option for personal loans, if you have lump sum money sitting idle.

For instance, if you have a Rs.3,00,000 loan amount taken from next month for 5 years at the rate of 17.5%. Suppose, you wish to pay the outstanding amount, let us see the table of calculations to know the extra amount you can avoid paying.

Year Principal (P)       in Rs. Interest (I)    in Rs. Total Payment (P)+(I) in Rs. Loan paid till date in % Outstanding amount (O) in Rs. Save if you wish to prepay amount O in Rs.
2016 33,774 41,592 75,367 11.26% 2,66,226
2017 47,544 42,896 90,440 27.11% 2,18,681 3,76,833
2018 56,566 33,874 90,440 45.96% 1,62,116 2,86,293
2019 67,298 23,142 90,440 63.39% 94,818 1,95,953
2020 80,068 10,372 90,440 95.08% 14,750 1,05,513
2021 14,750 323 15,073 100% 0 90,440
Total 4,52,200

Consider another illustration with a home loan of Rs. 30,00,000 for 12 years at the rate of 9.5%. Assuming part payment Rs.20,000 will be paid quarterly. Now, look at the table which shows your savings.

Note : Part payment paid anytime will reduce your principal amount.

Loan will close in Total Amount Saved Total EMIs Saved By Paying Number of Part-Payments Total Part-Payment Amount
108 months (Earlier 144 months) Rs.12,59,676/- 36 months Rs.20,000/- each. 35 months Rs.7,00,000/-

Yes, it is no exaggeration.
Save as and when you can without compromising on basic needs apart payment_loanyantrand amenities. Try to part pay your loan at least annually. And see how it works.

To decide which loan to close earlier, ultimately, is an economical trick. If the idle cash in hand earns you less return when kept in a bank or invested elsewhere when compared to the interest you pay on your loan, it is wiser to pay off the loan.

Pay fast and enjoy investing again or plan a holiday with your family.

 

 

*Both the instances are under the assumption of interest rates being constant

Calculator : Where you Get a Clear Picture of What Awaits

Every prospective homeowner looking for a home loan is akin to a blind man trying to make sense of everything with the help of the instinct. However, since the kind of home loan deal you manage to strike with your lender reflects on the kind of future you will have, getting to know the whole picture is always a wise decision. With the calculators at LoanYatra.com, you are gifted with the knowledge of what you will find in the loan sector. You will be able to dodge all surprises and come out stronger.

Don’t let your future boil down to a lifetime of EMI payments with the right calculator for your needs.

Home Loan Eligibility Calculator- The Home Loan Eligibility Calculator helps you know whether you are eligible for a home loan in the first place. Contrary to the popular notion, your lender conducts a thorough background check before trusting you with the money. There’s nothing worse than applying for a home loan and ending up dejected and disappointed just because you didn’t qualify. Save yourself the shock at the outset by using this calculator. You just have to input the requisite information like your gross monthly salary, the name of your company, the location of the property who are seeking a home loan on and the type of loan you desire. You can rest assured that this calculator would keep the legal formalities to a minimum. Since knowledge is power, even if you don’t find yourself eligible, you can plan for a future when you will be.

Balance Transfer Calculator- With the Balance Transfer Calculator, you are given the guarantee that not only would you be able to pay less, but also pay off your loan fast. You would be required to enter your current home loan details like the principal outstanding amount, the interest rate, your existing EMI, the number of EMIs left to be paid and the name of your bank. Once you inform this calculator of your property location, you will be notified of your bank transfer details.

Part Payment Calculator- Whenever you apply for a loan, the subject of EMI payment always persists like a thorn. Not all lenders take the time out to explain the algorithm behind the total amount you would be required to pay and the number of instalments you can distribute so as to lessen the huge financial burden. This is where the Part Payment Calculator comes in. You have to enter the total loan amount, the rate of interest on it, the repayment EMI, the number of months and whether you want to make the payment all at once, on a monthly, quarterly, monthly or half yearly basis. You will be notified of the part payment you need to make to reach closure sooner than you had formerly expected.

Home Loan EMI Calculator- The Home Loan EMI Calculator is one of the most efficient of the bunch as you would find a pictorial representation of the breakup of your total home loan repayment amount. Just input your home loan amount along with the interest rate and loan tenure and this calculator would tell you the monthly EMI value, the interest payable and the total payment you’ll be making. If you’re still trying to grasp what you are in for, the pie chart is there to make the complicated maths a lot easier to understand.

 

How to use home loan EMI calculator for calculating the EMI?

How to use home loan EMI calculator for calculating the EMI?

What is EMI?

Equated Monthly Installment – EMI for short – is the amount payable every month to the bank or any other financial institution until the loan amount is fully paid off. It consists of the interest on loan as well as part of the principal amount to be repaid. The sum of principal amount and interest is divided by the tenure, i.e., number of months, in which the loan has to be repaid. This amount has to be paid monthly. The interest component of the EMI would be larger during the initial months and gradually reduce with each payment. The exact percentage allocated towards payment of the principal depends on the interest rate. Even though your monthly EMI payment won’t change, the proportion of principal and interest components will change with time. With each successive payment, you’ll pay more towards the principal and less in interest.

Here’s the formula to calculate EMI:

where

E is EMI

P is Principal Loan Amount

r is rate of interest calculated on monthly basis. (i.e., r = Rate of Annual interest/12/100. If rate of interest is 10.5% per annum, then r = 10.5/12/100=0.00875)

n is loan term / tenure / duration in number of months

For example, if you borrow ₹10,00,000 from the bank at 10.5% annual interest for a period of 10 years (i.e., 120 months), then EMI = ₹10,00,000 * 0.00875 * (1 + 0.00875)120 / ((1 + 0.00875)120 – 1) = ₹13,493. i.e., you will have to pay ₹13,493 for 120 months to repay the entire loan amount. The total amount payable will be ₹13,493 * 120 = ₹16,19,220 that includes ₹6,19,220 as interest toward the loan.

Computing EMI for different combinations of principal loan amount, interest rates and loan term using the above EMI formula by hand is time consuming, complex and error prone. Our EMI calculator automates this calculation for you and gives you the result in a split second along with visual charts displaying payment schedule and the break-up of total payment.

How to use LoanYantra.com Home Loan EMI Calculator?

With colourful charts and instant results, our EMI calculator is easy to use, intuitive to understand and is quick to perform. You can calculate EMI for home loan and personal loan, education loan or any other fully amortizing loan using this calculator.

Enter the following information in the home loan EMI calculator:

  • Principal loan amount you wish to avail (rupees)
  • Loan term (months or years)
  • Rate of interest (percentage)
  • EMI in advance OR EMI in arrears (for car loan only)

Use the slider to adjust the values in the EMI calculator form. If you need to enter more precise values, you can type the values directly in the relevant boxes provided above. As soon as the values are changed using the slider (or hit the ‘tab’ key after entering the values directly in the input fields), EMI calculator will re-calculate your monthly payment (EMI) amount.

A pie chart depicting the break-up of total payment (i.e., total principal vs. total interest payable) is also displayed. It displays the percentage of total interest versus principal amount in the sum total of all payments made against the loan. The payment schedule table showing payments made every month / year for the entire loan duration is displayed along with a chart showing interest and principal components paid each year. A portion of each payment is for the interest while the remaining amount is applied towards the principal balance. During initial loan period, a large portion of each payment is devoted to interest. With passage of time, larger portions pay down the principal. The payment schedule also shows the intermediate outstanding balance for each year which will be carried over to the next year.

Floating Rate EMI Calculation

We suggest that you calculate floating / variable rate EMI by taking into consideration two opposite scenarios, i.e., optimistic (deflationary) and pessimistic (inflationary) scenario. Loan amount and loan tenure, two components required to calculate the EMI are under your control; i.e., you are going to decide how much loan you have to borrow and how long your loan tenure should be. But interest rate is decided by the banks & HFCs based on rates and policies set by RBI. As a borrower, you should consider the two extreme possibilities of increase and decrease in the rate of interest and calculate how much would be your EMI under these two conditions. Such calculation will help you decide how much EMI is affordable, how long your loan tenure should be and how much you should borrow.

Optimistic (deflationary) scenario: Assume that the rate of interest comes down by 1% – 3% from the present rate. Consider this situation and calculate your EMI. In this situation, your EMI will come down or you may opt to shorten the loan tenure. Ex: If you avail home loan to purchase a house as an investment, then optimistic scenario enables you to compare this with other investment opportunities.

Pessimistic (inflationary) scenario: In the same way, assume that the rate of interest is hiked by 1% – 3%. Is it possible for you to continue to pay the EMI without much struggle? Even a 2% increase in rate of interest can result in significant rise in your monthly payment for the entire loan tenure.

Such calculation helps you to plan for such future possibilities. When you take a loan, you are making a financial commitment for next few months, years or decades. So consider the best as well as worst cases…and be ready for both. In short, hope for the best but be prepared for the worst!