What is an Amortization Schedule in House Loan and Method to Calculate it?

An amortization schedule is a vital tool for planning a home loan by measuring the required amount to be paid over the tenure of the house loan. Therefore, if you are going to apply for a home loan, you should know the amortization and amortization schedule to plan your finances.

We will explain all the relevant aspects of amortization in the passage, stay through to know amortization comprehensively, and use the table to make an informed plan for home loan repayment.

What is Amortization?

Amortization by definition refers to paying off EMIs of the home loans during its tenure. Equated monthly installment contains interest, a portion of principal capital and it gradually increases with the tenure of the house loan.

What is an Amortization Schedule?

This shows all payments done and will be done during the tenure of the loan.

Each monthly payment contains a portion of the principal amount and interest. Borrowers can check and get to know how much they owe to the loan distributors, banks, or financial institutions. Each payment against the home loan can be broken down into principal amount and interest.

An amortization schedule is a table in a summarized detail of the loan repayment. You can find this summary report in a separate section or bottom of the page. Borrowers can also match the total paid amount in principal and interest with the outstanding home loan amount.

Categories of information in Amortization Schedule

Due Dates: Monthly date for EMI payment

Serial number of EMI: To track how many EMIs have been paid, borrowers can avail serial numbers with monthly EMI payments.

Opening Principal: Status of the principal amount after monthly payments. You can calculate the interest charged on the capital amount.

Installments: Amount supposed to pay monthly. It might differ as per changes in interest rate.]

Interest Rate per annum: information on interest rate per annum. It varies among different loan sanctioning authorities.

Other information through home loan amortization

Principal portion and interest left to be paid after monthly payment

Closing principal amount 

Method to calculate the amortization schedule

The amortization table is made by including loan duration, equated monthly installments with being paid, interest rate, EMI value. You can use all the home loan-related information and make an amortization schedule for a strategic approach to house loan repayment.

Example for a better understanding:

The borrower took a loan of Rs. 5 lakhs for the loan term of 10 years with an interest rate of 8 percent per annum. EMI for the house loan stands at Rs. 6056.

Now it’s time to measure the interest component in the first EMI; the borrower needs to multiply the interest rate with the loan amount. As mentioned above, the interest rate is annual, so it needs to be divided by 12 to get monthly interest.

The rate of interest for one month on the house loan will be: 5 lakhs multiplied by eight divided by 12, which brings our result 3,333. The borrower needs to deduct the interest from EMI to get the principal amount in the monthly pay-out. Here principal amount for the month will be Rs. 3,333 deducted from Rs. 6056 that is Rs. 2733.

An amortization schedule is a very useful tool to keep track of the loan repayment schedule by following interest and principal paid and outstanding on the house loan. If you are planning a house loan, use this table and make a calculated step. Always use a reliable and trustworthy website for an amortization schedule.