Wednesday, September 03, 2008

EMI & Loan amortization Formula

I realised that most who are searching for a EMI formula will not read a long blog -

To download the EMI / Loan Amortization Template and the formulae - click here

To read the descriptive blog about EMI / Loan Amortization - click here


Loan amortization schedule

I walk into my home today to find a mail from my Banker - there is an increase of 150 Basis Points in the Home Loan interest rate - meaning, my house loan has increased by 1.5% - What stumped my the most is this - My House loan tenure is increased to 425 months from 240 months, keeping the EMI (Equated Monthly Installment / Amortization Money) constant.

It took about 2-3 minutes to understand that a 1.5% increase in house loan can actually almost double my repayment period - and needless to say, you would almost pay 80% than what you actually would have paid at the end of the agreed period - in my case 24 months.

There was no mathematical error - and the easier way to decrease my 80% additional payout is to increase my EMI by just about 8% a month.

At first, I took the easy way out asking uncle "Google" for the formula for amortization / calculate payout months with EMI constant, and for a surprise - I did not get any simple answers - There were some good Excel Templates on Microsoft site - but I wanted something as simple, that can explain to my dad, who thinks either the bank is a robber or the son is negligent based on his mood.

So to help other souls like me, I built a simple Excel Sheet to calculate the EMI show 2 variations.

1. The Interest Rate increases - (that's what we hear every day) - How much does my EMI increase, if I keep the repayment period constant. I have shown the analysis for about 250 basis points of positive variation ~ meaning 2.5% increase - Why 2.5% increase - If the increase is more than this - I think its cheaper to take a loan from the open market and close the loan :)

2. The EMI is kept constant - The repayment period is increased - my scenario at the start of the blog - and this does not look good at all - a 0.5% increase increase by payout by 80% !!!! - I have shown a variance of 250 basis points here too - you would notice, that if you enter large loan amounts and higher interest rates - the "No of Months" column throws an error - it's actually not an error - this only means that the number of months to repay runs beyond your expected life time and I guess no bank likes that :P - meaning you are forced to increase your EMI - ofcourse, the bank will increase it to the base minimum to match the last payment to your last salary - ahhahahhahaha

I hope the template is useful - you can download it here:

I can answer few questions - pls do not ask me on how to solve your financial problems - you need to pay me for that :)


Monday, September 01, 2008

Random tidbits about my workplaces

  • Wipro had the fastest IT response time – under 2 mins – every time, all the time :) - Amazing
  • All most every single Finance / HR head across all the companies have been sacked / tried for either financial fraud or sexual abuse!!! – And all these companies have the longest essays on everything ‘ethical’
  • All but at one company (SumTotal) – I have seen people make-out or watch porn in the conference room
  • A comment that’s blog worthy
Working with XXXX is like reliving the dream of high school - except high school it was fun, but a few years down the lane, you see it as being stupid and occasionally laugh at yourself....but it gets even more frustrating when you have to hear self appointed pompous asses who make a big deal of it - grow up guys!!!! Unfortunately... I am living that for now - just can't wait to get out of high school
  • No company ever gave a financial bonus to any employees, while each maintained at least 40% profit Y-O-Y
  • Across all companies – ‘hikes ‘ came before appraisals finished
  • Every company spoke more(good or bad) of their competitors than themselves
  • Nobody “apparently” had any attrition problems – hehehe