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EMI Formula:
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The EMI (Equated Monthly Installment) formula calculates the fixed monthly payment amount for a home loan, including both principal and interest components. It helps borrowers compare different home loan options and plan their finances accordingly.
The calculator uses the EMI formula:
Where:
Explanation: The formula distributes the total loan repayment (principal + interest) equally over the loan term, with early payments having a higher interest component and later payments having a higher principal component.
Details: Accurate EMI calculation is crucial for home loan comparison, budgeting, and financial planning. It helps borrowers understand their monthly obligations and choose the most suitable loan option.
Tips: Enter the principal loan amount in AUD, annual interest rate as a percentage, and loan term in years. All values must be positive numbers.
Q1: What factors affect EMI amount?
A: EMI is primarily determined by loan amount, interest rate, and loan term. Higher amounts, rates, or shorter terms increase EMI.
Q2: Can EMI change during the loan term?
A: For fixed-rate loans, EMI remains constant. For variable-rate loans, EMI may change with interest rate fluctuations.
Q3: What's the difference between reducing balance and flat rate?
A: This calculator uses reducing balance method (common in Australia), where interest is calculated on outstanding principal. Flat rate calculates interest on original principal throughout.
Q4: Are there other costs besides EMI?
A: Yes, home loans typically include additional costs like establishment fees, valuation fees, and ongoing fees that should be considered in total cost comparison.
Q5: How does extra repayment affect EMI?
A: Extra repayments reduce the principal faster, potentially shortening the loan term or reducing future EMI amounts if recast.