A simple way to understand a loan EMI calculation in terms of a lump sum investment and a monthly SIP is discussed in this post.  This is applicable for all kinds of loans - home loan, car loan, personal loan etc.

There is a close connection between investment mathematics and loan/mortgage mathematics. In fact, those familiar with the formulae would tell you that they are pretty much identical!

Here is how a home loan EMI can be understood in terms of a lump sum and monthly SIP investment.

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Use this home loan transfer calculator to determine if it is worth refinancing your mortgage, that is, transfer your home loan to a new bank.

When a new home loan offer at a lower interest rate appears, it is tempting to want to shift an existing home loan, because the EMI will decrease for the same duration.

However, this involves costs – exit fees  and processing fees.

Also a lower EMI implies, lesser tax savings.  This is because the interest component decreases, while  the principal component increases, resulting in a net saving after accounting for the extra tax to be paid.

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How high can my home loan EMI be? What percentage of my gross monthly income can I afford to set aside for servicing my home loan EMI? These are questions that I have often seen in personal finance forums. When I recently saw it at Facebook group Asan Ideas for Wealth, I thought of discussing the issues with deciding a “comfortable EMI” amount.

The house/apartment decides the EMI!

Simple is it not! We can think long and hard, search for thumb rules for a comfortable EMI. All that would get thrown out of the window when we actually decide on the property that we wish to buy. The property decides the EMI. The “comfortable EMI” rarely decides the property!

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Use this calculator to  analyze if you should  pre-pay your home loan asap or invest instead. This is now republished after correcting a bug pointed out by Ankush.

I had posted an illustration of prepay vs invest in June  but did not post the associated sheet. I have now modified the sheet to include new tax rules. Future changes in rules can also be easily accommodated with user entry.

The money that is free for investments (inevstible surplus) is assumed to grow at some interest rate (can be modified). Whenever there is a need, withdrawals are made from the corpus.  This will work best if you use only long-term goals.

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Use this Excel-based template for creating an amortization schedule for your home loan. It allows you to visualize the monthly and yearly evolution of interest and principle components and the balance of the loan.

It can accommodate regular (monthly, quarterly, bi-annual and annual) and irregular (random months) pre-payment schedules.

It can also handle a loan disbursement schedule and allows variation of interest rate.

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