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Indian Real Estate News : Goa
EMI and spread OVER TENURE
Source: The Times of India Nov 22, 2013
KAVITA SRIRAM explains how your EMI amount can fluctuate through the tenure of your home loan EMI stands for equated monthly installment that is a fixed monthly payment due on a loan. It is a combination of interest and principal components.

The quantum of EMI is dependent on the loan amount, tenure, rate of interest, and method of loan computation. EMI will be greater if the money borrowed is large. The principal is a major determinant of your monthly repayment towards the debt.

A longer tenure reduces the monthly repayment burden and makes the loan process more affordable. A short tenure translates into a larger EMI outflow, but the debt is cleared faster.

A crucial factor is that a higher rate of interest means higher cost of borrowing. In case of floating rate loans, the rate of interest fluctuates. Fluctuating interest rates swings the EMIs in either direction.

Usually there is a reduction in principal with EMI being paid every month. The interest is calculated on the outstanding balance.

This EMI is arrived at on the basis of monthly reducing balance. When the EMI is calculated using the annual reducing method, the borrowers continue to pay interest on a portion of the principal that is already repaid.

There are both low and high interest cycles through the life of a home loan.

The cycles alternate swinging the EMIs up and down with them. During the low interest rate cycles, the EMI outflow falls. In this period the borrower must judiciously augment his gains.

When the rates are on the way upwards, the borrower’s EMI goes up. He must save enough to comfortably repay during high interest cycles. It always helps to ensure you plan your EMIs efficiently through the tenure.

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