All you should know about Home-Loan Amortisation - Home Loan Stories

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While a home loan can turn you dream into a reality, there are a number of thing that you need to look at to ensure that the entire process is smooth and hassle-free. Once you are done with choosing a loan provider, and the loan is approved, the next most important thing on your list should be checking the ‘amortisation schedule’.

What is an Amortisation Schedule?

This list contains all the details of your home-loan repayment. It states the principal amount and the interest that you need to pay, along with the EMI. The amount of interest and the principle changes throughout the schedule, even while your EMI remains the same. In the early months, each EMI that you pay has a larger interest component, and a much lower principal amount. As your loan progresses, the interest percentage starts to decrease and the principal amount starts increasing. However, this change between interest and payment does not affect the total amount that you need to pay as per the schedule.

Reading an Amortisation Schedule

It is very important to know how to read this table, in order to have a better understanding of your repayment schedule. The most important terms of an amortisation tables are:

Date: This column specifies the date on which you need to make your EMI payment. The date is the same every month to ensure that borrowers can easily remember repayments.
Days: It tells you the number of days for which that particular EMI needs to be paid. It is the number of days between two EMIs, including the payment date of the next month. The interest that is charged on your home loan amount is based on the number of days in a month. For instance, the interest charged in February (28 days) will be lesser than the interest charged in December (31 days).
Number of payments: It lets you know the number of EMIs you've already paid, as well as the number of EMI's pending at a particular time.
Interest: This specifies the amount that you need to pay as interest in every EMI. It generally starts decreasing as your loan progresses.
Principal: This is the principal amount that you will pay along with the interest every month. It generally starts increasing as your loan progresses.
Payment amount: This is the total amount that you need to pay (interest + principal) each month. It is the same every month except for the last payment, when it could be a lesser amount.
Balance: It indicates the total amount that you've taken as a loan, with both interest and the principal amount. The first entry in this column will be your total loan amount, which will keep reducing with each payment that you make, until it finally becomes nil.

Once your loan is approved, you should go through the amortisation schedule to ensure that you understand your repayment program and structure.

Disclaimer: Copyright Kotak Mahindra Bank Ltd.

All you should know about home loan amortization

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