Would you like to know what the final cost of your moratorium will be? If so, this loan moratorium calculator (or EMI calculator with moratorium) will help you understand and analyze how restructuring your loan through a moratorium impacts your payments. More precisely, you can learn and compare how much interest you would pay as well as when you would pay off your loan if you opt for a moratorium for specific periods.
Read on to learn what moratorium period is, how to calculate moratorium interest, and how to apply the EMI moratorium calculator.
What is moratorium period?
A moratorium period, in finance, is a period during a loan term when the borrower can delay or skip part, or the whole, equated monthly installment, or EMI.
In other words, the flow of payments from the borrower to the lender is suspended until the end of the moratorium.
How to calculate moratorium interest?
How the lender handles the moratorium interest calculation may differ depending on the given loan construction, the lender's guidelines, and the current legislative environment. In the present EMI moratorium calculator, we provide multiple options to cover all relevant moratorium interest calculations. We included the following moratorium definitions:
- Accumulated and capitalized interest
Most of the time, when opting for a moratorium, the borrower can postpone all payments until the end of the moratorium. In such cases, the lender still calculates and adds (capitalizes) the interest accumulated each month (compounded monthly) to the loan balance (principal). This means that each month the base of the interest calculation will be the new balance plus the previous month's interest. We can translate this process, also called compounded interest, easily into a mathematical form:
interest = balance * (1 + r)i - balance
balance- Opening balance at the beginning of moratorium;
r- Monthly interest rate; and
i- Number of moratorium periods.
Note, that since the moratorium interest will increase the loan balance, it will further raise the interest cost in the post-moratorium period, depending on the remained loan term left for repayment.
- Interest is paid during the moratorium
In this scenario, for example in the home loan moratorium, the moratorium applies only to the principal payment, which means the borrower is still obliged to pay the monthly interest. It follows that the loan balance will not increase, so the monthly interest to be paid will be the same in each period of the moratorium.
interest = balance * r
balance- Opening balance at the beginning of moratorium; and
r- Monthly interest rate.
Note, that the final cost of opting for a moratorium is not simply the interest calculated (either capitalized or paid) for the moratorium periods. When you start payments again, the lender will adjust your EMI, loan term, or both, depending on your new balance and the type of moratorium, which might further raise the interest cost.
Types of moratorium
What happens to your loan in the post-moratorium term? In general, there are three scenarios of how your loan is restructured after the moratorium period, which can either increase or maintain your equated monthly installment (EMI).
- Increased payment (EMI) - same term
Suppose your lender does not restructure your original loan payoff date, that is, your loan term will remain the same. In that case, you need to repay your loan balance in a shorter period (the original term shortened by the moratorium period), which is only possible if you pay higher monthly payments. Still, since higher EMI payment implies faster loan amortization, the final interest charge will be lower than the other two options.
- Increased payment (EMI) - extended term
In this option, the lender will extend the loan term by the moratorium period to keep the amortization term unchanged. Therefore, the only factor which will affect your EMI payment is the loan balance after the moratorium.
- Same payment (EMI) - extended term
If your lender lets you keep the original EMI payment, your loan term must be recalculated to have enough time to fully repay your loan balance. If you don't pay interest during the moratorium period, you will have to repay a higher balance with the same EMI, implying a longer loan term (longer loan amortization). What's more, a higher loan balance will increase your monthly interest, resulting in a higher total interest cost.
How to use the EMI moratorium calculator?
To understand all the options available in our EMI calculator with moratorium, follow the instructions below:
- Set the loan inputs:
- Estimation based on - You can choose either the loan term or the monthly payment (EMI) as the base for the calculation. The loan moratorium calculator will calculate the other metric automatically.
- Loan amount - The current or the original loan amount.
- Loan term - The full or the remaining term of your loan.
- Monthly payment or EMI - The original equated monthly installment (EMI).
- Interest rate - The annual interest rate.
- Compounding frequency (
advanced mode) - How the lender computes interest on the principal.
- Date of balance (
advanced mode) - You can set the precise date that you had the loan balance provided previously.
After setting up your current loan, you need to specify the moratorium interest calculation and the type of moratorium.
Before you specify this section, we advise you to check how your bank handles the moratorium and its moratorium definition.
- Capitalized (added to the loan balance) - When you set this option, your loan balance will be increased by the accumulated interest while your loan is under moratorium (compounded monthly, that is, the interest is added to your principal in each month).
- Paid during moratorium - In this case, you are obliged to pay the interest each month on your loan balance.
Type of repayment after deferment (Repayment by...)
- Increased EMI payment with the same term - In this case, the original end of the loan amortization will remain the same (no adjustment in the loan term), so your monthly payment will be adjusted so that you are able to repay your loan within the remained period.
- Increased EMI payment with extended term - When you choose this option, your loan term will be extended by the length of the moratorium, resulting in a higher monthly payment.
- Same EMI payment with an extended term - With this scenario, your EMI will remain the same and the loan term will be extended so you can fully repay your loan.
- Moratorium period - The number of months your EMI is suspended for.
- Moratorium from - Set here the date when your loan moratorium starts.
- Payment summary
In this section, you can compare the original loan (without deferment) to the one with deferment. For example, you can see how your monthly payment is adjusted after the loan deferment or how much interest you need to pay if your loan is deferred.
What's more, you can follow the progression of balances of the two options in a chart and check the schedule of payments.
How to calculate moratorium interest?
Let's consider the following moratorium example. Your full payment is suspended during the moratorium and the interest is capitalized monthly on your principal balance. In that case, you can calculate a moratorium interest of ₹ 10 lakh for 12 months with 12% interest (which implies 1% monthly interest) in the following way:
moratorium interest = 10,00,000 * (1 + 0.01)12 - 10,00,000 = ₹ 1,26,825
How to calculate balance at the end of the moratorium?
Let's say you have ₹ 10 lakh balance at the beginning of a 12 months home loan moratorium period with 12% annual, or 1% monthly, interest. If you don't pay interest during the moratorium, that is, the interest is capitalized on your principal balance monthly, you can calculate the balance of this moratorium example in the following way:
balance after moratorium = 10,00,000 * (1 + 0.01)12 = ₹ 11,26,825
How is EMI calculated after the moratorium?
To calculate EMI in the post-moratorium period, you need to know -
- The loan balance at the end of the moratorium;
- The interest rate; and
- The remaining loan term.
For example, if your balance is ₹ 30 lakh and the remaining term is ten years (or 120 months) with 12 percent of annual interest (1% monthly interest), the home loan EMI is calculated in the following way:
EMI = 10,00,000 * 0.01 * (1 + 0.01)120 / ((1 + 0.01)120 - 1) = ₹ 14,347.1
Moratorium calculator disclaimer
You should consider the EMI moratorium calculator as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are, despite our best effort, not exhaustive.
For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive useful feedback and advice.