Equated Monthly Installment (EMI) is the amount that is payable to bank every month in lieu of the loan taken until it is fully paid off. This amount consist of the levied interest on loan as well as part of the principal amount to be repaid to bank or financial institutions. The sum total of principal and interest amount is divided by the number of months i.e. tenure for in which loan amount has to be repaid. The set amount has to be paid monthly.
Let us consider a situation where you have decided to buy a home and you are going to take a loan from bank to fulfill this dream. The first step involved in it is not applying for it but sitting down and doing maths for it how much it is cost you. The loan amount that you are insisting to take is calculated in term of monthly payments that will have to be paid towards the borrowed mortgage and are called EMI.
To calculate the EMI you first get to know the principal amount i.e. borrowed, the rate of interest that is levied on the loan amount and amount you will pay as a processing fee.
EMI calculator is a simple tool that requires you to enter the following tools:
- Enter the principal amount you want to borrow from bank
- The tenure of the loan,
- The interest rate
- Processing fee
The basic formula that EMI calculator apply is:
E = P x r x (1+r)n/ ((1+r)n – 1)
E is calculated EMI amount that you will pay every month
P is the principal amount that you will borrow
R is the rate of interest i.e. levied on principal amount but calculated on a monthly basis. It is obtained by using formula (r= annual interest/12) X100
N is the tenure of loan in terms of months. So it will get multiplied by 12