When you avail a home loan, the lenders have a defined repayment structure, and you must repay the amount within the specific term. The lenders also provide an amortisation schedule. It is a document that enlists vital information relating to the monthly EMI (Equated monthly Instalment) amount you must repay, the total interest you must pay throughout the tenure of home loan and the speed at which the principal amount will be deducted.
Let us understand what amortisation schedule is and its importance
A home loan amortisation schedule is basically a chart that provides you valuable information relating to home loan repayment. It includes a full list of the number of EMIs you have paid so far, the number of payments pending till the end of the term, etc.
The schedule also gives you a complete breakdown of the proportion of the EMI that goes towards the interest and principal repayment with each EMI payment. This means you get to know the balance amount you are supposed to pay.
The amortisation schedule also provides a summary of the loan repayments, and it is usually mentioned at the bottom or as a separate section. The summary lists the total amount you have repaid, the total interest payment you have made through the loan term and the outstanding amount.
What does an amortisation schedule include?
An amortisation schedule contains the follow details
Number of instalments – Every time you pay the EMI, it is assigned a serial number. The schedule also shows the payment details associated with the EMI, i.e., whether it is the first or the 30th EMI.
Due date – One of the reasons why many experts recommend going through the amortisation schedule carefully is that it contains vital details such as the EMI due date. You must pay the EMI on or before the due date to avoid paying penalty or late payment charges.
Opening principal – During the initial few years of the home loan repayment, a significant portion of the EMI amount goes towards interest repayment. However, as you continue to repay the amount every month, the principal amount keeps reducing. The amortisation schedule gives you a clear picture of the balance principal amount at the start of every month.
Closing principal amount – It is the balance principal amount after every EMI payment you make. This amount is the same as the opening principal amount for the subsequent month.
Instalment amount – This refers to the amount you repay every month. The amount can change as per the changing interest rate over the loan term.
Interest component – As you pay your EMIs every month, over a period, the interest amount gets reduced, and a major portion of the EMI goes towards repayment of the principal amount.
Interest per annum – This is the annual interest charged by the lender.
Using the amortisation calculator
Just like you use the home loan EMI calculator to know the exact EMI payable for the amount you borrow and the loan term you choose, you can also use the amortisation calculator to get more details of the EMI payments. It is a simple and easy-to-use online tool where you must provide details such as interest rate, loan period, and loan amount.
The home loan amortisation schedule is vital as it allows you to keep track of your payments and plan your finances accordingly.