2 min
04 October 2024
When you take out a loan, it is important to know how you will pay it back. One key concept to understand is loan amortisation. This term describes how your loan payments are structured over time. Let us break it down simply.
M=P×(1+r)n−1r(1+r)n
Where:
As you can see, the interest portion decreases over time, and the principal portion increases.
Here are a few benefits of opting for a home loan with us:
1. High loan amount: Turn your dream of owning a home into reality with a home loan of up to Rs. 15 crore*.
2. Low interest rates: Enjoy interest rates starting at just 8.25%* p.a, with EMIs as low as Rs. 741/lakh*.
3. Quick approval: Get your loan approved within 48 Hours* of application – sometimes even sooner.
4. Long repayment tenure: Repay your loan at ease with a flexible tenure of up to 32 years.
5. No foreclosure fee*: Individual borrowers opting for a floating interest rate can foreclose or prepay their loan at no extra charge.
6. Easy application: Skip the hassle with our doorstep document pick-up service, making the application process quick and simple.
7. Balance transfer facility: Transfer your existing home loan and enjoy a top-up loan.
Take the first step toward your dream home today. Apply now with Bajaj Housing Finance.
What is loan amortisation?
Loan amortisation refers to the process of paying off a loan through regular payments. Each payment consists of two parts: the principal amount and the interest. At the beginning of the loan, you pay more interest. As time passes, you pay off more of the principal. This structure helps borrowers understand how much they owe at any time during the loan period.Why is loan amortisation important?
Understanding loan amortisation is crucial for several reasons:- Budgeting: Knowing how much you need to pay each month helps you plan your finances better.
- Interest costs: You can see how much interest you will pay over the life of the loan, allowing you to make informed decisions.
- Early payoff: If you wish to pay off your loan early, understanding amortisation helps you know how much extra you need to pay.
How does loan amortisation work?
Loan amortisation works by spreading out your loan payments over time. Here is how it typically works:- Fixed payments: You make the same payment amount each month.
- Interest and principal: Each payment is split between interest and principal. At the start, more of your payment goes towards interest. Over time, more goes towards the principal.
- Amortisation schedule: This home loan amortisation schedule shows each payment, how much goes to interest, how much goes to principal, and the remaining balance.
How is loan amortisation calculated?
To calculate loan amortisation, you need three main pieces of information:- Loan amount: The total amount borrowed.
- Interest rate: The annual interest rate on the loan.
- Loan term: The time frame to repay the loan, typically measured in years.
M=P×(1+r)n−1r(1+r)n
Where:
- M = monthly payment
- P= principal amount (loan amount)
- r = monthly interest rate (annual rate divided by 12)
- n= Total number of payments (loan term in months)
Example of loan amortisation
Let us say you take a home loan of Rs. 50,00,000 at an interest rate of 8.50% for 20 years. Your monthly payment would be about Rs. 43,391. Here is how the first few payments might look:| Payment | Interest | Principal | Balance |
| 1 | Rs.35,417 | Rs. 7,974 | Rs. 49,92,026 |
| 2 | Rs. 35,360 | Rs. 8,031 | Rs. 49,84,995 |
| 3 | Rs. 35,302 | Rs. 8,089 | Rs. 49,76,906 |
As you can see, the interest portion decreases over time, and the principal portion increases.
Benefits of loan amortisation
- Easy budgeting: Fixed payments make it easier to budget your finances.
- Debt reduction: Regular payments help you steadily reduce your debt.
- Interest savings: Over time, you pay less interest as the principal decreases.
Managing home loans with loan amortisation
When you take a home loan, understanding loan amortisation can help you manage your payments better. Here are some tips:- Use an amortisation calculator: This tool helps you see how your payments are split and how much you owe over time.
- Make extra payments: Paying extra towards the principal can reduce your interest costs and shorten the loan term.
- Refinance: If interest rates drop, consider refinancing your loan to save on interest.
Explore Bajaj Housing Finance Home Loan
When considering home loans, Bajaj Housing Finance offers attractive options tailored to your financial needs. With competitive interest rates and flexible repayment terms, free online home loan EMI calculator you can effectively manage your loan and make informed financial decisions.Here are a few benefits of opting for a home loan with us:
1. High loan amount: Turn your dream of owning a home into reality with a home loan of up to Rs. 15 crore*.
2. Low interest rates: Enjoy interest rates starting at just 8.25%* p.a, with EMIs as low as Rs. 741/lakh*.
3. Quick approval: Get your loan approved within 48 Hours* of application – sometimes even sooner.
4. Long repayment tenure: Repay your loan at ease with a flexible tenure of up to 32 years.
5. No foreclosure fee*: Individual borrowers opting for a floating interest rate can foreclose or prepay their loan at no extra charge.
6. Easy application: Skip the hassle with our doorstep document pick-up service, making the application process quick and simple.
7. Balance transfer facility: Transfer your existing home loan and enjoy a top-up loan.
Take the first step toward your dream home today. Apply now with Bajaj Housing Finance.
