What is an amortization schedule?
A home loan amortization table is the repayment schedule
depicting the EMI components of interest and principal and the outstanding
balance for every month for the entire home loan period.
How is it calculated?
In order to prepare the amortization schedule you will
need to first calculate the EMI on your loan. To do this you will require data
on the loan amount or principal, the loan tenor and the interest rate
applicable on your loan.
The overall EMI remains constant every month but the way
the amount is split between interest and principal payments differs for each
month.
At the start of the loan period, a larger part of the
amount repaid every month is apportioned towards interest payments. With a
progression in tenor, the amount apportioned towards interest reduces and the
principal repayments are larger.
This happens because interest is
calculated on a monthly reducing balance method. Under this, interest payable
is calculated on the balance outstanding at the end of every month. The balance
outstanding reduces as more and more of the loan is repaid, thereby reducing
interest payable in the subsequent months.
The below illustration details the calculations involved:
Loan Amount
|
Loan Tenor
|
Interest Rate
|
Rs.10,00,000
|
5
years
|
10%
p.a.
|
EMI = (P*i)^\ X (1+i)^n
{(1+i)^n} - 1
where,
P= Principal
or Loan Amount
i = interest
rate p.m.
n = loan tenor
in months
EMI = (10,00,000 *
0.00833) X (1 + 0.00833) ^ 60 = Rs. 21,247
[(1 +
0.00833) ^ 60] - 1
where,
Principal =
Rs.10,00,000
Interest rate
p.m. = 10%/12 = 0.00833
Loan tenor
(i.e. 5 years) in months = 60 months
Total Amount Payable = EMI * Loan
Tenor in months
= Rs.21,247 * 60
= Rs. 12,74,820
Total Interest Due = Rs.
12,74,820 - Rs.10,00,000 = Rs.2,74,820
Based on this data, the repayment
or amortization schedule is presented as given below:
Month
|
Opening
Balance
|
Principal
Repaid
|
Interest Paid
|
Outstanding
Balance
|
1
|
10,00,000
|
12,914
|
8,333
|
9,87,086
|
2
|
9,87,086
|
13,021
|
8,226
|
9,74,065
|
3
|
9,74,065
|
13130
|
8,117
|
9,60,935
|
4
|
9,60,935
|
13239
|
8,008
|
9,47,696
|
5
|
9,47,696
|
13350
|
7,897
|
9,34,346
|
…..
|
…..
|
…..
|
…..
|
…..
|
55
|
1,23,845
|
20215
|
1,032
|
1,03,630
|
56
|
1,03,630
|
20383
|
864
|
83,247
|
57
|
83,247
|
20553
|
694
|
62,694
|
58
|
62,694
|
20725
|
522
|
41,969
|
59
|
41,969
|
20897
|
350
|
21,072
|
60
|
21,072
|
21071
|
176
|
0
|
The
figures in the table are arrived at as follows:
First Month:
Interest paid = Principal X
Interest rate p.m.
= Rs.10,00,000 X 0.00833
= Rs.8,333
Principal repaid = EMI - Interest
= Rs.21,247 - Rs.8,333
= Rs.12,914
Balance Outstanding (i.e. Opening
Balance 2nd month)
= Principal - EMI
= 10,00,000 - 21,247
= Rs.9,87,086
Second Month:
Interest Paid = Balance
Outstanding X Interest rate p.m.
= Rs.9,87,086 X 0.00833
= Rs.8,226
Principal Repaid = EMI - Interest
= Rs.21,247 - Rs.8,226
= Rs.13,021
Balance Outstanding (i.e. Opening
Balance 3rd month)
= Opening Balance 2nd month - EMI
= 9,87,08 - 21,247
= Rs.9,74,065
Third Month:
Interest Paid = Balance
Outstanding X Interest rate p.m.
= 9,87,086 X 0.00833
= Rs.8,117
Principal Repaid = EMI - Interest
payable
= Rs.21,247 - Rs.8,117
= Rs.13,130
Balance Outstanding (i.e. Opening
Balance 4th month)
= Opening Balance 3rd month - EMI
= 9,74,065 - 21,247
= Rs.9,60,935
These calculations are repeated for every month of the loan
period. In the last month i.e. the 60th month, the last interest payment is
made and the entire principal is repaid leaving no balance outstanding.
EMI and Amortization
Calculators:
The calculations on your home
loan may appear tedious and time-consuming, and they well may be, especially
for those who find it difficult to deal with numbers. The process becomes even
more time-consuming when trying to make comparisons between lenders or
incorporating pre-payments in the schedule. To resolve this issue, online
financial tools like EMI calculators and amortization calculators are made
available by various online financial services providers. Among the leading
sites is that of Bank Bazaar’s, who's online financial tools allow users to not
only arrive at required answers but also displays data in a user-friendly
format.
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