HDFC, the premier housing finance institution in India, offers different types of non-housing loans, such as:
Loan Against Property: Personal loan against residential and commercial properties to meet business and individual needs.
Commercial Property Loans: Loans to purchase commercial properties like shops and industrial galas.
Commercial Plot Loans: Financial assistance to buy plots of land for commercial development
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A Loan Against Property differs from a home loan in various respects:
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As with home loans, the ideal mode of repayment of Loan Against Property is the EMI. The EMI concept is the most effective of all repayment methods. HDFC has different ways of repayment for home loans depending on the age of the borrower, the repaying capacity, the income generation, and the repayment tenure.
EMI represents Equated Monthly Instalments. The very term suggests that the instalment should be equal every month for a given set of circumstances. The EMI depends on the following factors:
Any change in the above three factors affects the EMI.
The EMI comprises two components:
As the EMI remains constant for every set of specific parameters, the principal and interest repayment components vary accordingly. In the initial stages, the interest component is substantially high. As the borrower keeps repaying the EMIs on time, the interest component keeps reducing. Simultaneously, the principal component keeps on rising gradually. Therefore, the loan gets repaid over its entire tenure.
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Calculating the EMI can be a challenging procedure. Generally, HDFC arrives at the EMI and mentions the same in the sanction letter. However, the borrower should know the formula for calculating the EMI. It will enable the borrower to determine whether the lender's calculation is accurate or not.
One of the easiest ways of determining the EMI is to use the HDFC LAP EMI Calculator.
On doing so, you get the following results:
Click on the 'View Details' option to get the loan amortization schedule. This schedule shows the details of the payment of the EMI annually. It also displays the breakup of EMI into interest repayment and principal repayment over the entire tenure. You can notice that the appropriation towards the interest component is more in the initial years. As you go deep into the mandate, the principal repayment component increases gradually.
An example of calculation of EMI for the HDFC Loan Against Property
Consider the following assumptions:
On entering this data into the EMI calculator, you get the following results instantaneously:
Click on the view details to get the loan amortization schedule.
|Year||Opening Balance||EMI x 12||Yearly interest||Principal repayment||Closing balance|
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The formula for calculating the EMI remains the same. You can calculate the EMI at the MyMoneyMantra website, as well.
Apart from the online EMI calculators, you can calculate the EMI of your Loan Against Property using MS Excel tables.
EMI = (P * R/12) * [(1+R/12)^N] / [(1+R/12)^N-1]
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HDFC offers alternate repayment options in the home loan to borrowers depending on their income generation. This facility is generally not available on Loan Against Property.
This facility is useful for young borrowers who avail home loans early in life. In the initial stages of the career, the income would be at a lower level. It increases with the annual increments and promotions. HDFC offers a unique facility where the EMI is lower in the initial years. It rises in proportion to your income in the subsequent years. This facility allows young borrowers to avail a higher amount of loan.
This facility is the opposite of what we have discussed above. The EMI is higher in the initial years and reduces proportionately with a subsequent decrease in the income. It is ideal for people who avail loans close to their retirement period. The pension amount they could receive will be lower than their monthly salary. This method of repaying EMI suits such people the best.
The tranche-based EMI concept is available in the case of home loans availed for properties under construction. Generally, you pay the interest on the amounts of loan disbursed during the construction stage and start the EMI after the full disbursement. However, you can tranche the loan and start paying the EMIs immediately without waiting for the total disbursement.
This option provides you with the facility of increasing your EMIs every year in proportion to your income. It can result in faster liquidation of the loan.
Borrowers get an extended repayment tenure up to 30 years with this option. As the tenure is longer, you have a smaller EMI, thereby entitling you for a bigger loan.
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Yes, the HDFC EMI Calculator provides you with the most accurate calculations. You have alternate methods to check out the accuracy of this tool.
In this era of floating rates of interest, the possibility of the rate changing is very much there in consideration. The EMI calculators available online do not have any facility to calculate the new EMI on their own. The borrower has to input new data to get the new EMI.
HDFC uses two options. One is to keep the EMI constant. Therefore, the loan repayment tenure will increase/decrease accordingly. Otherwise, it can choose to keep the mandate constant, whereby there will be a corresponding change in the EMI amount.
Usually, HDFC provides you with an amortization schedule at the time of the sanction of the loan. Borrowers can also seek the details whenever there is a change in the interest rate and a corresponding change in the tenure/EMI.
The loan amortization schedule provides information about the total interest payable over the tenure of the loan. It also provides the breakup of interest and principal repayment on an annual basis. Thus, the loan amortization schedule enlightens you about the appropriation of the EMIs you pay. You get an idea about the outstanding loan amounts throughout the loan tenure.
The best way to repay your Loan Against Property quickly is to make monthly prepayments with the surplus funds you have at your disposal. As these payments will be over and above the usual EMI, you can end up repaying the loan faster than usual.
It depends on the credit policies of HDFC. Usually, HDFC allows prepayment up to 25% of the outstanding principal amount at the start of the year without charging any penalty. Any payment made over the threshold 25% will attract a penalty for the amount exceeding the threshold limit.
It depends on the circumstances of the case. If you are a young borrower at the start of your career, the step-up repayment option is the best. Similarly, for people close to their retirement ages, the flexible repayment option is the ideal one.
The formula for calculating the EMI is the same for all kinds of loans that follow the compounding interest methodology. Therefore, you can use the home loan EMI calculator for calculating the personal loan EMI.
No, the formula for calculating the EMI is for loans with compound interest. It is not the ideal calculator for determining the EMI of a loan with simple interest.