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Home loan Amortization Schedule Calculation

Updated: Mar 21, 2022
How-is-the-Home-loan-amortisation-schedule-Calculated

While taking a loan may seem like a daunting task initially, more and more lenders are trying their level best to make it a transparent and simple process. One such piece of paper, that is often provided by the lenders to make the process of taking a loan even more transparent for the borrower, is the loan amortization schedule.

Just like schools and colleges had timetables to provide an order to life, banks have also made a schedule to aid your repayment plans. Learning more about your amortization schedule will help you aid your home loan repayment and plan your future accordingly to live a debt-free life much sooner!

Types of Loan Repayment Plans

Loan repayment plans can mainly be of two main kinds. One is an amortized loan and the other is a balloon loan. Let us try to understand these in brief.

In an amortized loan, often a long-term loan of a relatively large amount, the principal is multiplied by the rate of interest and the duration of the loan. This amount is then divided into monthly payments, which are usually equal for the borrower. However, if the borrower so wishes, he or she can very well pay more than just the amount due that month according to the amortization schedule.

Balloon loans, on the other hand, are usually short term loans whose initial portion is the only portion of the loan to be amortized. Therefore, towards the end of the repayment schedule, the amounts due are usually much larger, often even double of the ones paid right in the beginning.

Needless to say, the more popular repayment plan amongst the two remains to be the former, i.e., the amortized loan schedule, because of it’s easier-to-understand structure of repayment, lack of complexity and increased transparency.

What is Loan Amortization?

Loan Amortization refers to a payment schedule fixed between the lender and the borrower to pay off both- the interest accrued as well as the principal amount.

For instance, suppose you took a loan of 200 rupees from ABC lender. Now, ABC may provide you with an amortization schedule where it specifies that you’ll be required to pay an installment of 50 rupees along with the pre-decided rate of interest. Therefore, loan amortization schedules will make it easier and more transparent for you to see just how much you owe the lender and by when.

What can your loan amortization schedule tell you?

A simple loan amortization can tell you how much money you owe the lender and by what date. But this is not all! In fact, the amortization schedule is so detailed that it will provide you with a breakdown of the money you owe, into two parts, the interest and the principal, and will tell you exactly how much amount you owe towards both of them. Understanding this pattern and having a schedule before you that shows how interest, monthly installment and principal amount is calculated, can help you get ahead of the game and plan out your finances more carefully.

How will your loan amortization help you?

A loan amortization schedule will help you attain the following goals:

  • Plan your monthly budget more smartly
  • Be smarter financially and save up more!
  • Understanding how the loan amortization is calculated
  • Comprehending the breakdown of each monthly installment into money owed towards interest and towards the principal
  • Pay off the loan faster and smarter by recognising the patterns in the loan and being more aware

How is your home loan amortization calculated?

A home loan amortization schedule is calculated using the usual formula for calculating interest applicable for a month, subtracting it from the monthly EMI to understand contribution to repayment of principal, and so on for months until the outstanding principal balance is zero.

You can use Grihashakti’s home loan EMI calculator to get the EMI per month on your loan, as well as the loan schedule in seconds.

For example, housing loan of INR 50 lakhs taken for a period of 20 years at 7 percent interest rate per annum will have an EMI of INR 38,765 per month. A snippet of the calculation done for the 1st few months is represented hereunder.

Date Opening balance EMI Principal Interest Total Interest Balance
1-Jan-22 50,00,000 38,765 9,598 29,167 29,167 49,90,402
1-Feb-22 49,90,402 38,765 9,654 29,111 58,277 49,80,747
1-Mar-22 49,80,747 38,765 9,711 29,054 87,332 49,71,037
1-Apr-22 49,71,037 38,765 9,767 28,998 1,16,329 49,61,270
1-May-22 49,61,270 38,765 9,824 28,941 1,45,270 49,51,445
1-Jun-22 49,51,445 38,765 9,882 28,883 1,74,154 49,41,564
1-Jul-22 49,41,564 38,765 9,939 28,826 2,02,979 49,31,625
1-Aug-22 49,31,625 38,765 9,997 28,768 2,31,747 49,21,628
1-Sep-22 49,21,628 38,765 10,055 28,709 2,60,457 49,11,572
1-Oct-22 49,11,572 38,765 10,114 28,651 2,89,108 49,01,458
1-Nov-22 49,01,458 38,765 10,173 28,592 3,17,699 48,91,285
1-Dec-22 48,91,285 38,765 10,232 28,532 3,46,232 48,81,052
1-Jan-23 48,81,052 38,765 10,292 28,473 3,74,705 48,70,760
1-Feb-23 48,70,760 38,765 10,352 28,413 4,03,117 48,60,408
1-Mar-23 48,60,408 38,765 10,413 28,352 4,31,470 48,49,996
1-Apr-23 48,49,996 38,765 10,473 28,292 4,59,761 48,39,522
1-May-23 48,39,522 38,765 10,534 28,231 4,87,992 48,28,988
1-Jun-23 48,28,988 38,765 10,596 28,169 5,16,161 48,18,392
1-Jul-23 48,18,392 38,765 10,658 28,107 5,44,268 48,07,734
1-Aug-23 48,07,734 38,765 10,720 28,045 5,72,314 47,97,015
1-Sep-23 47,97,015 38,765 10,782 27,983 6,00,296 47,86,232
1-Oct-23 47,86,232 38,765 10,845 27,920 6,28,216 47,75,387
1-Nov-23 47,75,387 38,765 10,909 27,856 6,56,072 47,64,478

Some experts recommend trying to pay off the principal before the interest, as the same can reduce the very amount on which the interest is to be calculated. Hence, understanding and making the best use of these patterns can help you attain your financial goals much faster!

Conclusion

Therefore, loan amortization can help you inch closer to your ideal home! While it may be easy to lose the amortization schedule in the bunch of papers provided to you by the bank and vice versa, reading through the amortization schedule can help you gain mastery over your personal budget and finance and attain your financial goals much faster!

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