As a consumer, you tend to take distinct kinds of loans, may it be home loans of distinct proceeds ranging anywhere between 30 lakh home loan EMI and 35 lakh home loan EMI or any other loan options like auto loan, personal loan, gold loan, etc. in life to meet your distinct needs. All these loans come with a fixed repayment tenure, and they have a fixed interest rate throughout the repayment tenure unless it’s a floating rate credit option.
When you avail a loan having a fixed rate of interest and defined repayment tenure, you get a loan amortisation schedule with it. This schedule provides crucial details surrounding monthly repayments you will require making. It even allows you to compute the overall interest constituents that you will require paying through the repayment tenure. By learning the process to compute the loan amortization schedule, you will simply be able to assess whether closing the loan quickly by making additional payments is a good decision. Usually, if the interest levied on the loan is low and the loan offers you various other advantages like tax benefits, you can continue with the loan for a higher tenure, up to the complete tenure.
When taking up a home loan, ensure to completely go through the amortisation schedule. Note that you can make use of the online home loan amortisation calculator for knowing the numbers. In many cases, an amortisation chart for the home loan is offered by the lender. Read on to know about the amortisation schedule, its calculations, uses, etc.
Read on to understand the home loan amortisation schedule –
What’s amortisation?
Amortisation infers paying the credit in equal instalments throughout the repayment tenure. A portion of every instalment consists of the loan principal and another part is the interest constituent. With amortisation of loan, the amount that contributes to the principal component is small at the beginning and it gradually becomes bigger to a big amount. Meanwhile, the interest component keeps falling every month for the fixed interest rate loan. In simpler words, an amortisation schedule shows the money that you will require paying as principal and interest across the loan repayment tenure.
What’s amortisation schedule?
An amortisation schedule for home loan offers the basic details regarding the loan and how you will make the repayments of it. It usually involves a thorough list of all payments needed to be done over the repayment tenure. Every amount on the amortisation schedule can simply be broken down according to the proportion of interest and principal components. You will even get to know about the rest of the loan amount post making every month payments. This can assist in understanding your overall debt that you will require incurring throughout your repayment tenure.
An amortisation schedule even comes with the summary of repayments either mentioned in a separate section or bottom. The summary shows the overall interest amount payment made throughout the loan repayment tenure while even confirming whether the overall principal payments match with the overall outstanding loan amount.
What is included in the amortisation schedule?
Here are some of the important details you will get in the amortisation schedule.
Instalment number – Every EMI payment has a serial number alongside payment details mentioned in a corresponding row.
Due date – This is the date on which the EMI is due.
Opening principal – Principal amount at the starting of every month based on which the interest constituent is computed.
Instalment amount – This is the EMI or the monthly repayment proceeds. It can change according to the interest rate fluctuation over the repayment tenure.
Principal portion of the instalment – It is the EMI constituent that goes into making the principal amount repayment of the loan.
Interest constituent of the instalment – This is the EMI constituent that goes towards repaying the interest on opening principal value. In the beginning, EMIs are mostly made of higher interest constituents and the cycle is reversed over time.
Closing principal – This is the remaining principal constituent after every month’s EMI payment. This is the same as opening principal for consecutive months.
Interest rate – This refers to the annual interest rate which might differ based on the lender. Home loan rate can change the loan EMI that must be paid each month.
How to compute the amortisation schedule?
It is simple to make an amortisation schedule through which the available loan details include the loan repayment tenure, number of EMIs, interest rate and monthly instalment value. Read on to understand this with an example –
Consider the loan proceeds equal Rs 5 lakh
Interest rate is 8 per cent per annum
Repayment tenure is 10 years
Monthly payment is Rs 6,066
For computing the interest constituent in the initial EMI, you require multiplying the loan proceeds with rate of interest. As the interest rate is annual, it should be divided by twelve for computing the interest on a monthly basis. Thus, (5 lakh x .8/12) endows the interest for the initial month i.e., Rs 3,333. The principal constituent computed by lowering this interest from monthly instalment i.e., (Rs 6,066 – 3,333) is Rs 2,733.
Take the amount out of principal paid in the initial instalment from overall loan proceeds for arriving at the rest of the loan balance. To compute the consecutive month’s principal and interest amount as part of instalment, you can repeat the mentioned computation by considering the rest of the loan amount. Repeat this step until you have the amortisation schedule for the whole repayment tenure.
Make use of the amortisation calculator –
There are various online amortisation calculators using which you can compute your monthly due. All you must do is, input the loan proceeds, rate of interest and repayment tenure. By making use of such online calculators, the periodic repayments that you must do for your home loan can be computed easily.
Ending note
Loan amortisation is the payment of the fixed amounts at periodic intervals. An amortisation schedule is crucial because it mentioned regular payments that you must make using the loan. As it consists of the principal and the interest constituent, you can simply keep good track of the thorough remaining principal constituent that you must repay.
