What's the Amortization Schedule for Home Loans?

You may research different lenders and compare loan offers to purchase a new property and apply for a home loan. While it is an important step to ensure that you have a smooth borrowing experience, you must not overlook another critical aspect of a home loan, i.e., the repayment aspect. 

As a home loan borrower, it is paramount that you have a clear understanding of how the repayment works. This will help you avoid defaulting on your monthly EMI (Equated Monthly Instalment) payments, channel your cash flow more efficiently, and not fall into a debt trap. 

Typically, the repayment structure greatly depends on the EMI amount, which is made of two components – the principal amount and the interest payable. To make the whole process of loan repayment structured, and transparent for you to understand, the lenders provide you with a document called home loan amortization schedule. 

 

Let us understand more about what the loan amortization schedule is, how it works and why it is important for you. 

What is a home loan amortization schedule?

A home loan amortization schedule is basically a table that outlines the details of your monthly payments. It gives you a breakdown of the interest and the principal amount for each EMI payment. The schedule allows you to understand how your monthly payments contribute to reducing the outstanding balance and how much interest you pay through the loan tenure. 

 

What are the different components of a home loan amortization schedule?

To understand the home loan amortization schedule fully, you must know its different components. 

• EMI Amount

As you look at the loan amortization schedule, you would see that each row showcases the exact EMI amount you must pay for a specific month. 

 

• Principal amount

This section of the schedule shows how much of your EMI payments go towards repaying the principal amount, i.e., the money you borrow. Over time, this portion increases, and contributes more to the reduction of the outstanding amount. 

 

• Interest amount

In this section, you will find the exact interest payable for each month through the loan tenure. It is high during the initial year and gradually reduces as you keep paying the loan every month. 

 

• Outstanding balance amount

This schedule gives you a clear idea of the outstanding balance amount at the end of each month. 

 

How does the home loan amortization schedule work?

Now that you know amortization and its components, it would help with how this schedule works. The home loan amortization schedule works on the principle of reducing outstanding balance. Let us understand its working in detail:

• The initial stage

During the initial few years of your repayment tenure, a large portion of your EMI amount goes towards repaying the interest. That is because your EMI is computed based on your outstanding loan balance. 

 

• Gradual reduction in the principal amount

As you continue to make the monthly EMI payments, the outstanding principal amount decreases gradually. As a result, the interest component of the loan in your EMI also decreases. 

 

• Higher principal payment

During the later stages of the repayment tenure, the interest to the principal amount of the EMI ratio reverses. As you near the end of the repayment term, a large portion of your monthly payments go towards repaying the principal amount. That leads to an accelerated reduction in the outstanding balance.

Let us understand the working of a home loan amortization schedule better with an example and see how the actual loan amortization schedule works. 

Let us assume, Miss. Gayatri Kamath, a 35-year-old salaried employee takes a home loan of Rs. 2,50,000 for a period of 20 years and the interest rate levied by the lender is 4.5% per annum. Then here is how her home loan amortization schedule will look like. 

 

Month	Principal Amount	Interest Payable	EMI Amount	Total Interest Paid	Outstanding Balance
October 2024	Rs. 462.69	Rs. 1520.83	Rs. 1,520.83	Rs. 1,520.83	Rs. 249, 537.31
November 2024	Rs. 465.50	Rs. 1518.02	Rs. 1,520.83	Rs. 3,038.85	Rs. 249,071.81
December 2024	Rs. 468.33	Rs. 1515.19	Rs. 1,520.83	Rs. 4,554.04	Rs. 248,608.48
--	--	--	--	--	--
July 2044	Rs. 1,947.76	Rs. 35.76	Rs. 1,520.83	Rs. 226,009.06	Rs. 3,931.13
August 2044	Rs. 1,959. 61	Rs. 23.91	Rs. 1,520.83	Rs. 226,032.97	Rs. 1,971.53
September 2044	Rs. 1,971. 53	Rs. 11.99	Rs. 1,520.83	Rs. 226,044.97	Rs. 0

 

*Please note – The above table is for indicative purposes only. The actual interest rate and the figures in the table may vary based on the loan amount you borrow, the tenure you choose, and the interest levied by the lender. 

 

How does the home loan amortization schedule benefit you?

A home loan amortization schedule can benefit you in more than one way. Let us understand how:

• Since the loan amortization schedule gives you a clear picture of the EMI payable every month, you can plan your finances accordingly and allocate the amount in your monthly budget and take care of other financial commitments, like savings, and investments. 
• Another significant benefit of the home loan amortization schedule is that it gives you a clear understanding of the total interest you pay and how much of the EMI amount goes towards interest repayment. 
• The amortization schedule allows you to keep a track of the outstanding loan amount and how each month the balance reduces. This can be a motivation to prepay the amount and be debt free soon. 

 

Conclusion

A home loan amortization schedule is a valuable tool for all home loan borrowers. It helps you understand the repayment process and plan your finances better. You can use the home loan amortization calculator periodically to review the schedule and make informed financial decisions.