Home Loans: Understanding Your Amortization Schedule

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.

Getting Home Loans Online In India

You may be ready to take a loan to fund your dreams for a new home. But the challenge you now face is in getting the loan at the right price, from the right lender with all the right benefits. Given that there are so many lenders out there wooing customers with attractive features on its home loan products it can be quite confusing for a lay person to cover all bases and make the right decision as to which home loan to opt for.

Most people do the age-old exercise of asking friends and family about home loans available in the market and their views or experiences with different lenders, then going down in person to the shortlisted lenders and finding out more about the loans available. They then return home, collate all the required information and documentation and take it back in person to the lender for perusal and review. The applicant then waits to hear whether or not his/her loan has been approved or rejected.

This may be great for the generations of yore who didn’t have the benefit of technology to help get everything done from one place i.e. the comfort of their homes. Lenders have long since embraced technology and established portals through which potential borrowers can browse their loan offerings and the eligibility and documentation requirements. They even go one step further by allowing users of their websites to apply for their loans online, home loans included. All required details for a complete loan application would have to be keyed in by the applicant and the processing begins thereafter. What’s more, applicant’s can subsequently track the status of their loan application through the lender’s website by keying in details from their application.

For e.g. if you were to log into ICICI Bank’s website and navigate to ‘Home Loans’ from under the ‘Products’ tab, you would immediately see an icon that says ‘Apply Online’. By clicking on this icon you are redirected to a page that first determines your eligibility for the home loan by asking you to fill in details relating to the city where your property is, the reason for the loan, the city you currently reside in, your date of birth, and your employment type. You also have the option here of including a co-applicant’s income. You can then get a quote by filling up your name and contact details followed by the loan amount and tenor that you are looking at. Once you decide to apply you can go ahead to the following pages to fill in the loan application.

The process is similar to most lenders and is a very convenient way to apply for a home loan. It saves time and travel and you also get all information regarding the home loan schemes with their details, terms and conditions at one place. It is particularly useful for those who do not have easy physical access to banks/institutions.

While this may be a useful way to apply for a home loan from an individual lender there is still the issue of comparing loan products across different lenders. It can still be confusing and time -consuming for an individual to browse the websites of all lenders in the market and make a comparison based on calculations as to whose offer is the best. There may be lenders you aren’t even aware of much less decide to go to their website.

To overcome this, many financial sites have collated information about lenders and their home loan products into one website. Bank Bazaar is one such company that provides comprehensive information about loan products. By visiting bankbazaar, users can not only get individual lender’s home loan product information but can also easily calculate maturity values, EMIs etc using their online financial tools. They also provide for easy comparison of loans. Users can then apply for loans through this website for the selected lender and obtain great deals that they would not otherwise have got by visiting the bank/financial institution themselves. This is because of Bank Bazaar’s tie-up with various lenders to avail of great rates/benefits to those applying for home loans through its site. Besides the ease of use in applying for your home loan, you can also browse through various user reviews that give you valuable information on their experience with various lenders. Bank Bazaar also has a repository of information on home loans that users can make use of to understand the product and market better.

The ease of applying for home loans online in India will only get more popular as more borrowers begin to trust this mode of dealing with lenders. Besides home loans, various other loans can also be applied for in the above mentioned ways. It would be prudent for all users, though, to do their homework before applying online so as to not sustain a fallout from lack of information or understanding. 

Home Loans: Common Mistakes Borrowers Make

There are some common mistakes borrowers make while opting for a home loan. They are listed below:

Home Before Loan

Home buyers tend to first look for a house or property and then go about trying to get a loan. Ideally, one should consider the loan amount that they will be eligible for then assess their finances accordingly to determine a feasible budget for a new house/property.

Poor Creditworthiness

All leading banks and financial institutions assess the creditworthiness of their customers before approving their loans. Many borrowers are not aware of this and are surprised when they find they have been rejected due to poor credit. An individual can get their credit score/report from providers like CIBIL and check their credit standing. In case of a poor score, the borrower can build their credit rating over a couple years and apply for a loan again at a later date.

Not Negotiating:

Many borrowers take a lender’s loan offer at face value. They do not realise that they can get a better deal by negotiating with the lender on a variety of the terms outlined in the loan offer including interest rates, loan amounts, tenor etc. Those with a good credit-standing can bargain for better rates.

Inadequate Research:

There are number of lenders offering home loan products, each one differing in terms of their offerings to meet the varied funding needs of borrowers. However, a lot of borrowers do not bother to study their options and miss out on good offers. They also do not find out about the lender’s reputation or service.

Incorrect Budgeting:

When home buyers take a home loan, they often only assess their finances to cover for loan repayments and do not factor in other expenses that may arise for which they will need to have savings. For e.g. buying a new car or relocating or education expenses or even medical emergencies. A home loan should be affordable after ascertaining all possible personal financing requirements.

Marketing Gimmicks

Many lenders offer attractive rates as part of their marketing strategy to woo customers. Borrowers fail to study the terms and conditions under such offers and opt for these loans thinking they have got a good deal. They later realise the product doesn’t suit them.

Timing Interest Rates

Trying to time the market for lower interest rates is difficult and many borrowers miss out on a good deal by waiting too long for a more attractive loan.

Home Loan costs:

To most people, loans are looked at in terms of their interest costs but they fail to factor in other charges like processing fees,administration fees etc. which add to the cost of the loan.

Unforeseen circumstances:

Most borrowers do not realise the importance of being able to pay off their home loans, which is a huge debt to satisfy, in the event of untimely circumstances e.g. death. Insuring one’s home loan can help meet repayment commitments in such events.

Inadequate funds:

Obtaining a loan may be possible for a lot of borrowers but they do not account for the fact that lenders do not cover the entire amount due for the property. The down payment is usually borne by the borrower prior to receiving the loan amount and not having adequate funds for this purpose can cause a major glitch in the homeloan process.

Avoiding these common mistakes will ensure a smoother and more satisfactory experience when availing home loans.

Know all about ICICI Home Loan interest rates in India

ICICI Home Loan Interest Rates

Home is the place where we share our dreams, talks, thoughts and most importantly our lives with our dear ones. It is one

of the precious asset one can possess in his/her life. But sometimes, financial problems or short of funds may lead us to

suppress our dream and move on in a rented house for ever. But, why to do so when we have a solution? Home loan would

give you all the privilege to share your lives with your family in your own home.

                                                  Image Source: icicibank

ICICI Bank has come up with a product called “ICICI Home loans” especially for women borrowers who are the ultimate diva

to build a home. Earlier they used to build their homes with their love and dedication. But, now ICICI Bank home loans will

give them an opportunity to build their homes with the brick of love and emotions. Yes, a special interest rate is offered by

ICICI Bank home loans for the women borrowers.

There are several features in ICICI Bank Home loan which will make you drive with a key to your dream home.

First, let’s discuss about them.

ICICI Home Loan features:

ICICI Home loan interest rates are very attractive and less, especially for women borrowers.

You’ll get a loan tenure up to 30 years.

There is a clear and transparent documentation.

Loan will be provided only for approved projects.

Facility of Balance transfer to a bank offering less interest rates is available.

Facility of taking loan against property is available.

And what more a man desires? ICICI Bank home loan is a full package of features and facilities with less interest rates. Let’s

discuss about ICICI Bank home loan interest rates.

ICICI Bank Home Loan interest rates (offer valid till 31st august 2014):

ICICI Home Loan Interest rates for women borrowers:

ICICI Home Loan Interest rates for other borrowers:

For the amount of home loan less than 75 lacs, ICICI Home loan interest rate is 10.10% (Floating rate).

For Salaried individuals:

For the amount of home loan less than 75 lacs, ICICI Home loan interest rate is 10.15%

(Floating rate).

For the amount of home loan more than 75 lacs, ICICI Home loan interest rate is 10.50% to

11.25% (Floating rate).

For Self-employed individuals:

For the amount of home loan less than 75 lacs, ICICI Home loan interest rate is 10.25%

(Floating rate).

For the amount of home loan more than 75 lacs, ICICI Home loan interest rate is 10.50% to

11.25% (Floating rate).

ICICI Home Loan Interest rates for priority sector lending:

ICICI Home Loan 1 year / 2 year Fixed interest rate:

ICICI Home Loan renewable Fixed interest rate:

For the amount of home loan less than 15 lacs/25 lacs, ICICI Home Loan interest rate is 10.15%

(Floating rate).

For Salaried individuals:

For the amount of home loan less than 75 lacs, ICICI Home loan interest rate is 10.15%.

For the amount of home loan more than 75 lacs, ICICI Home loan interest rate is 10.50% to

11.00%.

For Self-employed individuals:

For the amount of home loan less than 75 lacs, ICICI Home loan interest rate is 10.25%.

For the amount of home loan more than 75 lacs, ICICI Home loan interest rate is 10.50% to

11.00%.

For the initial period of 2 years the FD rates are:

For the amount of home loan less than 75 lacs, ICICI Home loan interest rate is 10.25%.

For the amount of home loan more than 75 lacs, ICICI Home loan interest rate is 10.50% to

11.00%.

Note: All the above rates are valid till 31st

interest rates from time to time.

Therefore, these are the ICICI Home loan rates which are very less and competitive with a lump of facilities that are

irresistible. So, don’t waste your time in thinking, just go grab the opportunity.

For all the information about home loan with the comparison access and EMI calculator, visit www.bankbazaar.com and

apply for your home loan there and then only. Visit now! Your home is waiting for you!

 august, 2014 and are subject to change. Please check the ICICI Home loan

Top 5 reasons for drop in 2014 Home Loan EMI

Home Loan EMI

Home is the most precious and expensive asset that we make during our life. With the increasing range of homes in terms of cost, it is really very difficult for the people to get their dream home. And what else you get? A heavy and thrifty burden of EMI’s will make it even more expensive. But, one can manage the drop in Home loan EMI with the few reasons associated with the drop in Home loan EMI’s in 2014. Banks are now more customer centric and have given few options for customers to lower their EMI’s. Let’s discuss the top 5 reasons for drop in 2014 Home loan EMI.

Reasons for drop in 2014 Home loan EMI’s:

1.     Tenure Stretched to 30 years: Recently RBI has announced that there will be an increase in the tenure of Home loan for its repayment. Earlier the Loan repayment tenure was fixed at 20 years but now it has been stretched to 30 years. Because of this, the EMI will be distributed for 30 years and the Home loan EMI will get lower. So, the individuals who do not have much repayment capacity in their pockets can opt for 30 years loan tenure to reduce their burden of heavy EMI’s.

2.     Lowering of Interest rates: Recently many banks have reduced interest rates for their home loans like SBI has made it @10.15% for men and 10.10% for women. Lowering interest rates means that EMI will get reduced as most of your EMI in the initial years comprises of interest amount. Thus, due to lowering of interest rates, Home loan EMI gets reduced.

3.     Balance Transfer option available: Many banks has this option available with them. Balance transfer option means that if some other bank is offering comparatively lower interest rates on their home loan, the person can transfer his/her balance amount of loan to the other bank who is offering lower interest rate, in order to make his/her monthly EMI’s lesser. This can be done by using Home loan EMI calculator where you can calculate the difference or benefit you’ll get in your EMI’s, if you choose for balance transfer in other bank.

4.     Lump sum prepayment option available: Some banks have the option of Lump sum prepayment when you have good amount of cash in your hand. In this option you can prepay lump sum amount towards home loan and continue your home loan with the balance amount for the same tenure. This will reduce the balance amount left for payment and hence, will decrease your amount of monthly EMI’s.

5.     Floating Rate of Interest: This option is pretty much interesting. There are two types of interest rates that you can opt for. One is fixed interest rates which remains same throughout your loan tenure and the other one is floating interest rates which changes with change in the base rate announced by RBI from time to time. Going for a floating interest rate can give you a pleasure of less EMI, if the base rate is reduced by the RBI. Thus, you can get a chance of enjoying lower EMI’s.

Therefore, these are the top 5 reasons or options available with the customers in order to reduce the burden of heavy and high EMI’s. It is our pocket and no one else knows how deep or shallow it is. So, get your EMI’s adjusted at par with your repayment capacity every month. You can do so by using Home loan EMI calculator, which will give you a clear range of your EMI’s on the basis of the amount you are in need of, interest rate and loan tenure.

Get the full access to all the major providers of home loans, compare among them, calculate your EMI’s using Home loan EMI calculator and apply through your home loan on a single screen. 

Real Estate News on Home Loans

The formation of a new central government brought back a positive momentum in the real estate segment. With plans to increase the LTV ratio as high as 90% by the National Housing Board and discounted interest rates being offered by top lenders ICICI Bank and State Bank of India, the home loan market has witnessed a good month. The Reserve Bank of India kept the repo rates unchanged helping in continuation of home loan interest rates devoid of any hike. Now with the annual budget just a few weeks away, the real estate industry and home loan seekers are bracing for positive announcement in the budget that can bring back the buzz in the home loan segment and the real estate sector as a whole.

RBI keeps repo rates untouched:

In a positive development announced in the beginning of the month of June, the Reserve Bank of India kept key rates unchanged. The repo rate was unchanged at 8% while the reserve repo rate was fixed at 7%. The SLR however was cut by 50 basis points. The announcements were largely as per market expectations and meant little or no change in home loan interest rates for new or existing borrowers.

High expectations from Union Budget 2014-15:

With the new central government likely to present its annual budget on the 10th of July, there are high expectation from both real estate developers and potential buyers. A vast majority of people expect the Narendra Modi government to announce a real estate regulatory or watchdog much on the lines of TRAI for the telecom sector. While developers expect change in laws for easier clearances, home loan borrowers are expecting deduction on home loan interest rates making buying a home more affordable to the common man.

NHB to allow up to 90% LTV:

Earlier the national housing bank NHB announced its plans to increase the LTV ratio for home loans above Rs. 20 Lakhs to 90% of the property value. If approved the NHB plan would allow more users to avail home loans as it would reduce the margin money required by individuals seeking home loans. With the sluggish gains in the real estate sector in the past year, NHB plans to increase LTV ratio is likely to trigger a positive impetus in the domestic housing real estate market. 

ICICI Bank cuts home loan rates:

ICICI Bank, India’s largest private bank and also the biggest home loan provider in the private sector announced a 0.10 percent cut in home loan interest rates. The limited period offer ending on June 30th brings ICICI Bank home loan interest rates at par with the discounted home loan rates of State Bank of India, the country's largest home loan lender. ICICI Bank offers home loans up to Rs. 75 Lakhs 10 10.15% while women borrowers would be given a further 0.05% discount with loans available at 10,10%.

SBI extends discount scheme for women borrowers:

The State Bank of India extended its home loan interest scheme especially designed for women borrowers. The scheme which was originally to expire on March 31, 2014 has been extended for an indefinite period allowing women borrowers a discounted interest rate of 10.10% for home loans above Rs. 75 Lakhs. For home loans above Rs. 75 Lakhs, women borrowers are eligible for home loans at 10.25% compared to 10.30% for other borrowers.

Developers want Home Loan Interest Exemption to be upped

The real estate market in India exhibits a practical example of demand and supply – basic law of economics. The soaring prices of property depict its excess demand which is making investment more expensive with each passing day. The high appreciation in property prices, ranging up to 50%, has not only caught the common man’s attention, but has even tempted NRIs to invest their funds. At this point, the government has to play a crucial role in the revival of residential real estate prices with new policies, increased tax exemption, and reduced interest rates, etc.

Home Loans in India

The boom in the real estate sector has given home loan business a new dimension by attracting various investors to build their dream house. Though home loans have always been the best choice for the end customers, but in the recent times, constant home loan tax exemption of Rs 1.5 Lakhs has failed to match the inflation. The middle income groups, especially the salaried individuals’ feel prohibitive prices and a few incentives make their dream beyond reach. Furthermore, the current tax benefits are too less to fuel the demand and propel growth in infrastructure.

Need for Increase in Tax Exemption on Home Loan

With the entry of a stable government, everyone is expecting the upcoming budget to provide the required policy incentives, stability and tax concessions for promoting the investments and economic growth of the country. The new government should primarily focus on continuing stimulus measures, seeing the delicate situation of economic recovery.

Specifically, in the context of real estate, developers feel a strong need for tax exemption in order to make home loan finance sector affordable. Few of the key recommendations for the upcoming budget are listed below:

·          Infrastructure status to be given for affordable housing: In this scenario, once the infrastructure will fall under priority sector lending of banks, it will provide funds at less rates.

·         Increase in exemption limit for home loan interest: The tax benefit for home loan interest has been the same at Rs 1.5 Lakhs since 2001. Since, the real estate prices have increased manifolds; the amount of loan required by an investor has also been directly affected. Developers are of the opinion that if this limit is increased to Rs 3 Lakhs, it might help in bringing back the boom in the real estate industry. This would surely be quite lucrative for the investors as it would imply additional tax savings as well.

·         Revision of home loan limit for PSL: The housing loan limit should be revised from Rs 25 Lakhs to Rs 35 Lakhs under PSL as this move would help buyers who are struggling to buy property due to soaring prices.

·         Income tax rebate should be extended to the private sector for the development of affordable housing

To sum up, the raised expectations of developers should be considered in order to review the benefits that housing loans provide under the various sections of income tax act. This move will definitely help people at all levels to borrow in order to fulfil their dream of owning a property.