Everything You Want to Know about Home Loan Amortization

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When it comes to applying for a home loan, today, you have many options to choose from. But, the key to getting the best offer is to check the loan amortisation schedule. Read on to know more about it. 

Applying for a home loan is the best way to realise your dream of owning a home come true; it allows you to get the desired funds to complete the purchase. But, when you avail a loan, there are several things you must consider ensuring that the process is hassle-free. After you zero-down on the best lender, and you get your loan application sanctioned, the next important thing to do is to check the loan amortisation schedule. 

What is a home loan amortisation schedule?

A home loan amortisation schedule is essentially a report that lists out the details of home loan repayment. It gives you a clear break-up of the principal amount, the interest amount and other charges included in your EMI (Equated Monthly Instalment). Over the years, as you continue to pay the EMI consistently, even as the EMI remains the same, the interest and the principal amount changes throughout the schedule. 

During the initial few months of the repayment, each EMI that you pay has a larger interest component and a lower principal amount. But, as you progress, the interest percentage starts to decrease and the principal amount increases. However, this change between the interest and the principal payment does not affect the total amount you pay as per the schedule. 

What are the important components of home loan amortisation schedule?

When you apply for a home loan, you may do your research about the various offers available in the market and the lenders. Similarly, you must take your time to know about the home loan amortisation schedule. This will help get a better understanding of the repayment schedule. Let us look at some of the important components of the amortisation table:

  • Date

This column specifies the scheduled date on which the EMI amount will be debited from your bank account. The EMI will be debited on the same day of the month throughout the loan tenure (unless you specifically request for a change in the date in writing to the lender) to ensure that you easily remember the repayment date. 

  • Days

This section tells you the number of days for which the EMI must be paid. It is the number of days between two EMI, including the payment date of the next EMI. The lenders typically charge the interest based on the number of days in the month. For example, the interest charges in February will be less than the interest charges in July.

  • Number of payments

This is an important section as it lets you know exactly the number of EMIs you have paid already till date and the number of EMI that are pending at a particular time.

  • Interest rate

It tells you the exact interest amount you must pay in every EMI. During the initial period of repayment, the interest rate is high, and it starts to decrease as you continue to repay the amount. 

  • Principal amount

Just like the interest rate section in the home loan amortisation schedule, it tells you the principal amount you must pay along with interest every month.

  • Payment amount

This is the total amount you are supposed to pay every month, and it includes the interest and the principal amount. The amount remains the same throughout. 

  • Balance

This section tells you about the total amount that you have borrowed. The first entry in this column will be the loan, and it will keep reducing as you pay the EMI every month. When you pay the last EMI, the section will show zero balance. 

Once the lender approves your loan, it is advisable to go through the amortisation schedule to ensure that you understand the repayment structure. This will help you plan your finances well and make repayment easy.