What is Home Loan Amortization Schedule and How to Read One

Loan amortization refers to the process of reducing debt liability with regular payments over the term of the loan. A home loan amortization schedule is a tabular representation of periodic loan payments. It shows the principal component and the interest component that comprise each instalment until the end of the term when the loan is paid off. It can help you keep track of how much you owe and when a payment is due.

What is an Amortization Schedule?

Before you apply for a home loan, use a home loan amortization calculator to get the amortization schedule. To help you read it correctly, we have explained the essential elements of an amortization table below.

• Instalment Number – Every instalment will have a unique serial number, and payment details will be listed in the corresponding rows.

• Due Date – It is the date on which an instalment becomes due.

• Opening Principal – It is the principal amount at the beginning of each month. The interest is chargeable on this amount.

• Instalment Amount – It is the monthly repayment amount or the EMI which may or may not change with fluctuations in the interest rate over the years.

• Principal Component – It is the component of the EMI that goes into repaying the principal amount of the home loan.

• Interest Component – It is the component of the EMI which is dedicated to the payment of the interest on the opening principal amount.

• Closing Principal – It is the principal amount that remains to be repaid after the payment of each month’s EMI. It is equal to the opening principal amount for the next month.

• Interest Rate – This is the yearly interest rate or the interest rate per annum and may vary based on the lender. The interest rate is used to calculate the EMI.

Additional Read – Tips and Tricks to Reduce Home Loan EMI

When you read the amortization table, you will notice that early on in the schedule, the majority of each payment is what is owed in interest. However, later on in the schedule, the majority of each payment covers the principal amount of the loan.

Why do you need to know your EMI in advance?

• Knowing Your Loan Eligibility – An amortization table lets you know the exact amount you need to pay as EMI every month for loan repayment. It helps determine your home loan eligibility.

• Budgeting – Knowing the exact amount you are going to have to pay as EMI helps you mentally and financially prepare for what’s coming. Therefore, you will be able to plan other expenses around your monthly EMI.

• Planning Out Loan Repayment – Once you know the exact amount you will need to pay each month as EMI, you can decide whether you will be able to shell that amount every month or not. If not, you can look into other options like increasing the tenure to plan out a convenient repayment.

Additional Read – How Can A Home Loan Calculator Help You Plan Your Finances Better

Need a home loan? Tata Capital has years of experience in the industry and offers attractive home loan interest rates and with minimal required documents. For more information, and to use our home loan EMI calculator, visit our website.