If you want to create an amortization schedule to monitor your home loan repayment process, good going! By using an amortization schedule, you can plan your finances well and make significant savings.

Drawing up your own amortization schedule or a chart is good practice because it provides a detailed break-up of your equated monthly instalments (EMIs) into the principal and interest components.

But how is this breakage calculated, and what are the elements included in it? Let us understand the process in detail.

Knowing your EMI amount will make it easy to calculate your amortization schedule. But even if you don’t know your EMI value, it’s okay. You can find out your monthly repayment amount using an onlinehome loan EMI calculator.

You just need to enter the loan amount you wish to borrow, its tenure, and the interest rates. It then automatically  calculates your EMI value in an instant. This tool is quite useful, especially if you are in the early stages of applying for a loan and have no data other than your loan amount and the rate of interest.

Now that you know your monthly repayment amount, let’s proceed with the next steps.

Calculation for home loan amortization schedule

You will need to calculate the interest and principal component separately. Here’s how.

1. Amount towards the interest component

The first step is to take the total amount of your loan and multiply it by the home loan interest rate. The result is the amount going toward your interest component. Now, divide this value by 12 to get the monthly interest.

Monthly Interest payment = [Total loan repayment amount x Rate of interest]/12

2. Amount toward the principal component

Subtract the interest amount (as calculated above) from the EMI amount. This result is the amount going towards your principal component.

Principal payment = EMI – [Total loan repayment amount x Monthly interest payment]

Repeat the same for consecutive months, but instead of using the total loan amount, use the principal balance from the previous month.

Continue this process till the end of your loan tenure, and you’re done! You have successfully created the schedule for your home loan amortization.

Why calculate an amortization schedule?

Understanding your amortization schedule helps you assess your loan repayment situation better.

For instance, knowing the interest component and its effect on your repayment schedule allows you to  switch to a loan provider providing better rates at any point of your loan tenure. It also helps you weigh in on the pros and cons of a particular plan of action. For example, if it is beneficial for you to pay off the housing loan early or continue as per the schedule.

In conclusion

To ensure you enjoy a hassle-free loan repayment, pay attention to the intricate details of your loan repayment schedule and the interest rates at the time of application.