It is quite likely that you have had least one kind of loan – may be a car loan, a personal loan or for that matter a mortgage for your home, that is, a home loan.
Financially, all loans have a few common parameters:
- A loan amount
- An interest rate
- Repayment Period
Using the above we arrive at the regular monthly payment, also called as an EMI or Equated Monthly Instalment.
So, let’s take an example.
Vipin borrows Rs. 20 lakhs from a bank for buying a new home.
The bank is willing to lend it at an interest rate of 8.35% per year. The loan is to be repaid over 20 years. The repayment has to be done via a monthly instalment or an EMI.
The question is what is the EMI that Vipin has to pay?
While the bank will of course tell you this, how about calculating it yourself. It is going to be fun.
A pretty simple way to find out the EMI is to use MS Excel. So, let’s head over there.
The following video takes you through the EMI puzzle.
Video: Length – 15 mins approx.
If you have any questions, please do mention in the comments below.