A home loan calculator is indeed a great tool to figure out the right repayment schedule of your loan, without straining your finances. But, are you using it the right way? Check out the Do’s and Don’ts of using it.
It’s the dream of every Indian family to live in a place they can proudly call their own. With sky-rocketing rental prices and demanding landlords who breathe down your neck, a dream home is what guarantees familial bliss.
Home Loans – Making Dream Homes a Reality
There are plenty of home loans in the market that help you move into your dream property, without having to wait for years to save for it. You can easily repay your loan as EMIs. This is the amount you have to pay every month to the lender until you repay your entire loan (both the principal and interest).
The EMI varies from one borrower to another and depends on several factors like the capital borrowed, interest rates, loan tenure and much more. Figuring out how much EMI, you’ll have to pay when you avail a loan is crucial before you sign the loan document.
If the EMI is large, you could end up straining your monthly budgets, without having much leftover to meet other expenses. Too small EMI, you’ll have to repay your loan for a longer period, thereby paying higher interests.
This is where home loan calculators come into the picture. These are handy tools that automatically calculate the EMI, helping you figure out the right loan parameters that work for you. If you’ve never used a loan calculator before, here are a few Do’s and Don’ts to help you out.
- Know your Principal
Before you use a home loan calculator, you should have an idea of the amount you’re looking to borrow (principal) from the lender. Having a rough estimate of the cost of your dream property/construction costs (if you’re building your house), will help you plan better.
- Look at Interest Rates
The interest rate varies from one financial institution to another. Before you check out the calculator, do a bit of research. Make a shortlist of lenders who meet your requirements and ask for the interest rates they charge to borrowers.
Most lenders provide a tentative interest rate on their website. This helps you input the correct figure in the interest rate column of the calculator.
- Play around with the Values
This is a crucial step. Once you have keyed in the three primary parameters – principal, interest, and tenure, you have to play around with these, till you arrive at an EMI that fits your budget. For instance, if the initial EMI suggested by the calculator is too high, you can try reducing the principal or increasing tenure, depending on what works for you.
- Use a generic Calculator
Almost all financial institutions and other lenders have an EMI calculator on their site. When you’re checking out a lender, make sure to use the home loan calculator offered by the lender, to get accurate values.
- Take its word Entirely
While a loan calculator is a great way to get the big picture of your loan, you shouldn’t trust it completely. Very often, most calculators don’t show other costs like processing charges, prepayment penalties, etc. Remember that the calculator just gives you a tentative EMI and the final EMI you have to pay may vary by a few hundreds or thousands, depending on your lender.
With that said, a home loan calculator is an absolute must for all those who are looking to borrow a home loan. It helps you give a fair estimate of how the home loan EMI will impact your finances. This gives you a good starting point for further negotiations with your lender.