A mortgage, also known as loan against property, is a type of secured loan granted by banks against residential or commercial properties that are under the borrower’s ownership. Under this loan arrangement, the bank or lender retains the property as collateral until the borrower repays the loan in full. Mortgage loans can be availed by both salaried and non-salaried individuals. The loan repayment is further distributed over a period and can be paid through Equated Monthly Installment (EMI). This way, it doesn’t become a financial burden for the borrower.
Before borrowing a loan against property or a mortgage, it is important for a borrower to know the EMI obligations that will follow. For this, one can make use of Finity’s mortgage calculator. Here is everything that a mortgage borrower needs to know about using this calculator.
What is a mortgage calculator?
The mortgage EMI calculator:
- is an online tool
- helps borrowers know the precise EMIs to be paid to lender every month
The calculator requires three main components to calculate loan EMI amounts. These are:
- Loan amount
- Interest rate
- Loan tenure
Once these components are entered, the mortgage calculator will show the monthly EMI to be paid within a matter of seconds. The loan against property EMI calculator has three sliders for the components to be input. Once a user fills in the details, the calculator displays the mortgage EMI amount to be paid to the lender every month. All the EMIs paid throughout the loan tenure will result in complete repayment of the mortgage or loan against property.
What are the factors involved in mortgage EMI calculation?
As mentioned earlier, there are 3 important factors that are crucial to the mortgage EMI calculation. Here are the details surrounding these factors:
- Mortgage amount: The loan amount that can be availed against property depends on the property being mortgaged. However, the larger the loan taken, the higher the EMIs.
- Mortgage tenure: The loan tenure for a mortgage loan is usually calculated by banks as per the borrower’s present age and the estimated retirement age. If the loan tenure is longer, the EMIs are generally smaller.
- Rate of interest: An important determinant that influences the ability and ease of mortgage loan repayment is the interest rate. A higher interest rate may impact the chances of sourcing a larger loan amount or it can result in a longer loan repayment tenure. A lower interest rate, however, can let borrowers take a larger loan amount and make the loan repayment easier. The interest rate charged by banks may depend on the type of property being mortgaged, the borrower’s credit profile, etc. Interest rates can be floating or fixed, depending on the bank or lending institution.
How to use Finity’s mortgage calculator?
Finity’s mortgage calculator is an automated tool that shows borrowers the monthly amount that they must pay towards the loan repayment.
To estimate the EMI applicable on the mortgage loan, a user can make use of the sliders that are incorporated in the calculator. These sliders allow users to adjust the values of:
- Mortgage amount
- Mortgage tenure
- Rate of interest
Here are the steps to be followed for calculating the loan EMI using the mortgage calculator:
- Choose the mortgage loan amount using the slider
- Choose the mortgage tenure in years
- Select the applicable rate of interest
- The calculator will calculate the:
- EMI amount and
- total interest outflow
- It is easy to recalculate the EMI amount at any time by modifying the numbers through input sliders
- The calculator estimates the EMI instantly once the slider inputs are modified
How does the mortgage calculator work?
The mortgage calculator uses the following formula to estimate the EMI amount:
EMI amount = [M x I x (1+I)^T]/[(1+I)^T-1]
M = mortgage amount
I = interest rate and
T = mortgage tenure
All the above-mentioned are variables.
Thus, every time that a user changes any of these variables in the calculator, the EMI value will also change. The EMI amount must be paid each month and the loan tenure must be entered in years.
Here is an example to understand how it works:
Suppose an individual avails a mortgage loan of Rs. 10 lakhs with an interest rate of 10%, for 6 years.
The EMI calculation will be:
M = 10 lakhs,
I = 10/100/12 (to convert the rate into months),
T = 6 years or 72 months.
EMI = [10,00,000 x 10/100/12 x (1+10/100/12)^72] / [(1+10/100/12)^72-1]
EMI = Rs. 18,525
What are the advantages of using Finity’s mortgage calculator?
Finity’s mortgage calculator tells users, within a few seconds, the EMI that they will have to pay on a mortgage loan. Here are some of the benefits of using this calculator:
- It can help in budgeting of expenses to meet immediate and long-term financial goals.
- The calculator is easy to use and with only three inputs required to get an EMI estimate.
- One can save time that would otherwise be required to manually calculate the EMI.
- If a borrower uses this calculator before applying for a mortgage loan, he/she can gauge personal repayment capability and accordingly make the loan application.
- The calculator is free of cost and is available online.
What are the benefits of a mortgage loan?
Some of the reasons why many borrowers prefer a mortgage loan are:
- A mortgage loan or loan against property generally comes with lower interest rates as compared to other unsecured loans, like personal loans.
- One can avail this type of loan for a longer duration and conveniently repay the same.
- These loans come with different interest rates and repayment options.
- A mortgage loan can be availed against residential or commercial properties.
- It involves an easy documentation process and most banks in India offer this loan.
- The loan amount can further be used for payment towards a house, meeting any financial requirement like funding a business, medical expenses, child’s education, etc.
Make use of Finity’s mortgage calculator to take better control of your finances and be well prepared before opting for a mortgage loan. It saves time and hassle of manually estimating the EMI payments towards a mortgage loan.
You can estimate the repayment schedule based on the EMI amount that is displayed by the mortgage calculator. This will depend on the loan amount and tenure.
Since this calculator is specifically designed for mortgage loans, you can use it to know the exact mortgage EMI amount that you will have to pay through the loan tenure.
Yes, every bank and financial institution checks the credit score of an applicant while granting a mortgage loan. Credit score helps lenders to determine creditworthiness of an applicant.
Some banks and lenders may charge a higher interest rate on mortgage loans for borrowers with a low credit score. This is because a low credit score indicates poor creditworthiness and increases the risk of lending for banks.
A mortgage loan requires a borrower to provide their property as a collateral against the loan amount. In case of home loans, there is no need to offer the property as collateral. The interest rates of mortgage loans are usually lower than home loans. Also, mortgage loans can be used for various financial needs, whereas a home loan has to be used for payment towards purchasing a home.