Last Updated on February 12, 2022 at 6:32 pm
Use this free EMI Moratorium calculator to understand how much you would lose (pay extra interest) if you opt for the three month EMI holiday offered by your bank under the directions of RBI.
We have already discussed why you should not opt for RBI’s EMI moratorium & defer loans by 3 months. Here is how EMI holiday works. First, let us understand how loan amortization works. That is, how a loan gets paid off. Those interested in a flexible loan amortization spreadsheet can get one here: Excel Home Loan Amortization Schedule Template. The EMI Moratorium Calculator in this article is derived from this template.
Once the EMI for a loan is calculated – just like an MF SIP: Understanding Loan EMI Calculation as a Monthly SIP Investment! – it has two components: the interest which is equal to outstanding balance x (loan interest/12) and the rest of the EMI is the principal.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
After each EMI is paid, the principal component is deducted from the loan outstanding. While the EMI is constant each month, the principal and interest components change as shown below.
These are the associated numbers. Initially, the EMI is dominated by the interest
How EMI Moratorium Works
Suppose we avail the EMI moratorium offered by the bank for the 7th, 8th and 9th months. That is the EMI for those months is set to zero. However, the interest will accrue.
For the 7th month, the interest on the outstanding balance of Rs. 9,68,407 in the 6th month is Rs. 7263. This gets added to the outstanding balance in the 7th month and becomes part of the principal.
For the 8th month, the outstanding balance is Rs. 9,68,407 + Rs. 7263 = Rs. 9,75,670. The interest on this amount is Rs. 7318 which gets added to the balance.
For the 9th month, the outstanding balance is Rs. 9,75,670 + Rs. 7318 = Rs. 982988. The interest on this amount is Rs. 7372 which gets added to the balance.
Now in the 10th month, the EMI resumes. You could ask the bank to increase the EMI and the loan would end as planned or you could pay the same EMI and the loan would get extended. The calculator only considers the latter possibility: same EMI, longer loan tenure. For the numbers shown above, the loan would get extended by 8 months and the excess interest to be paid = 4.14 times the EMI!
This is why banks would happily offer the moratorium or even set it by default! They earn more! This is why you should never accept the moratorium! If your cash flow situation is so bad that you cannot pay the next three EMIs then you may not pay EMIs after the EMI holiday as well! The spirit of the EMI moratorium is lost. Never opt for it!
EMI Moratorium Examples
Example 1
- Loan amount: 10 lakhs
- Loan Tenure: 10 Years
- Interest rate: 9%
- The month when moratorium starts: 7
- Excess interest to be paid if you avail moratorium: Rs. 52,457
- The loan will be extended by (months): 8
- Excess interest divided by EMI: 4.14
Example 2
- Loan amount: 10 lakhs
- Loan Tenure: 10 Years
- Interest rate: 9%
- The month when moratorium starts: 45
- Excess interest to be paid if you avail moratorium: Rs. 29,650
- The loan will be extended by (months): 6
- Excess interest divided by EMI: 2.34
- Since the EMI has lesser interest component in the 45th month than the 7th month, the loss is lower.
Example 3
- Loan amount: 10 lakhs
- Loan Tenure: 5 Years
- Interest rate: 12%
- The month when moratorium starts: 10
- Excess interest to be paid if you avail moratorium: Rs. 45,239 (4.5% of the loan amount)
- The loan will be extended by (months): 6
- Excess interest divided by EMI: 2.03
Example 4
- Loan amount: 2 lakhs
- Loan Tenure: 2 Years
- Interest rate: 25%
- The month when moratorium starts: 2
- Excess interest to be paid if you avail moratorium: Rs. 20,452 (10.23% of the loan amount)
- The loan will be extended by (months): 5
- Excess interest divided by EMI: 2.03
EMI Moratorium Calculator
This is the screenshot of the calculator with input cells in green.
Download version 2 of the EMI Moratorium calculator (updated 3rd April 2020)
(This is version 1 here you can only set 3 EMI holidays)
References
- Circular from SBI
- Circular from ICICI Bank
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)