How to Calculate the Interest Rate on a Housing Loan

housing loan calculator

Individuals can meet home financing needs by securing a housing loan from a reputed lending institution. A home loan is a secured loan that enables a borrower to access substantial funds. One can obtain a loan for a certain tenor and repay the principal amount within that period. Lending houses charge a specific percentage of this principal amount for using the funds as interest rate. 

Potential borrowers should know how to calculate home loan interest and estimate the cost of loans. This helps them to decide whether or not they can afford the loan. 

Using the interest formula

One can manually calculate home loan EMI by using the following formula:

P*R*((1+R) ^n)/(1-(1+R) ^n)

To further simplify the formula, 

P denotes the principal or loan amount, R is the interest rate on offer, and n is the loan tenor in months. Borrowers can adjust the values and calculate home loan rates against a particular EMI. This also offers convenience in finding out how much EMI one can afford. 

However, this manual calculation may be cumbersome for some borrowers. To that end, potential applicants can also evaluate interest rates using Microsoft Excel and an interest calculator and make room for sufficient savings in the future.

Other than the interest rate, one must follow a guide to understanding the costs of buying a home for additional savings in the long run. 

Using Microsoft Excel

The PMT function in Microsoft Excel enables users to calculate housing loan EMIs without much turnaround time. Potential home buyers who want to know how to calculate home loan interest can input the following command:

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Here, “RATE” signifies the interest rate on offer divided by 12, “NPER” is the number of EMIs, and “PV” is the principal amount. One can set the values of “FV” and “TYPE” to zero and proceed. 

Using housing loan EMI calculator

Counting on online tools for housing loan interest rate calculation is most desirable as it offers quick and error-free results. One can easily calculate EMIs and total interest by following the below-mentioned steps:

  • First, borrowers need to input the loan amount in the marked field. 
  • Then, they can enter the interest rate offered by the lender. 
  • Finally, they need to choose a specific tenor and click on “calculate.”

By using this tool, one can also interchange the values and compare interest rates online. In this regard, one can choose reputed lending houses and use their housing loan calculator for efficient results. Such lenders also provide a substantial loan amount and pre-approved offers for a hassle-free application process. These are available on various products like home loan and loan against property. Borrowers can check their pre-approved offers by entering a few basic details, name and phone number. 

Factors that affect housing loan interest rate

Apart from knowing how to calculate home loan interest, potential borrowers must be aware of certain factors affecting their interest rates:

  • Credit score: Lenders consider an applicant’s credit history while deciding the interest rate. So, one should keep a clean track record without any dues and defaults to obtain a lower interest rate. 
  • Stable income sources: If an individual successfully presents sufficient documents proving his or her salary strength, the chances of getting a home loan at lower interest rates increases. 
  • Property location: The location of a property plays a major role in determining its value. Considering a location with substantial amenities, a lender might offer attractive deals on housing loans. Moreover, a property’s age is also considered while setting an interest rate. 
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Apart from these factors that decide your home loan interest rate, one should try to obtain lower interest rates from lenders by following the given tips:

  • Negotiate with lenders
  • Opt for a home loan balance transfer facility
  • Apply for a joint housing loan 

So, it is evident that prior to a housing loan application, one must know how to calculate interest and other charges for maximum benefits and a seamless experience.

Lue R. Crafts

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