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What is the Home Loan Principal?_WC
In the context of a Home Loan or loans in general, the principal amount refers to the original loan sanction disbursed to you as a borrower. However, when it is time to repay your Home Loan, your repayment amount includes two components:
- The original Home Loan amount you borrowed, i.e., the Home Loan principal
- The cost of borrowing the Home Loan levied above the Home Loan amount, i.e., the Home Loan interest
When your total Home Loan repayment amount is calculated, the rate of interest is compounded monthly on your outstanding principal amount and the interest accrued on it - as of the last EMI payment.
Buying a house is an exciting prospect, especially when it is an aspirational venture for most first-time home buyers. While a Home Loan is the ideal funding solution for such purchases, it is important that you seek a Home Loan amount that can do both – afford the property you want to buy and fit in to your repayment capacity.
Even if you downscale your Home Loan principal amount, the total repayment amount still adds up to be a substantial sum that will take you a considerable period to repay. Keeping the size of the commitment in mind, you should aim to keep your Home Loan repayment manageable, which can be done if the principal amount can be paid off comfortably without stretching your finances too thin.
Here are some aspects you should look at closely, before you decide your Home Loan amount:
- Existing Financial Commitments: Make sure that you account for your ongoing financial obligations when you plan your Home Loan. If your current payment responsibilities are already high, consider scaling down your Home Loan amount to suit your repayment capacity.
- Loan-to-Value Ratio: Another significant factor to consider is the Loan-to-Value ratio It helps lenders calculate the final Home Loan amount they are permitted to sanction based on the RBI’s mandate. The current Home Loan LTV ratio stands at 75% to 90% of the property value, i.e., lenders can fund only up to 90% of the cost and not more.
Use this information to reassess the loan amount you stand to get from the lender and plan your down payment accordingly. This way, you request an amount that matches your eligibility and save on your potential interest outflow.
Calculating the principal amount in a home loan is simpler than you might think. There's an easy formula you can use:
Principal Amount (P) = (Interest Amount (I) * 100) / (Number of Years (N) * Interest Rate (R))
Let’s understand this formula with an example.
Let us assume you took a Home Loan of Rs. 7 lakhs at the rate of 8.60% for 10 years. Here, the simple interest amount is 602,000. To calculate, the principal amount, let us use the formula as stated above.
P = (602,00 * 100) / (10 * 8.60%)
P = 700,000
Listed below are two ways to check how much of your Home Loan principal amount is still left to repay.
- Amortisation Schedule: Amortisation tables summarise your entire repayment schedule, starting with your opening balance and the principal outstanding at the end of the year. Detailed amortization tables show the contribution each EMI makes towards principal repayment of housing loan – calculating the remaining principal after each EMI payment.
- Home Loan Statement: An easy way to check your outstanding housing loan principal amount is to check your Home Loan statement. It contains a detailed breakdown of your loan repayment history, including the initial loan amount, the amount already repaid, and the outstanding principal.
You can use the Home Loan EMI Calculator to give you a more astute insight into what your repayment schedule could look like based on your desired Home Loan amount. Not just that – the tool also projects a tentative EMI amount, calculated based on the information provided by you.
With Bajaj Housing Finance, you may avail of a Home Loan worth Rs.5 Crore* or higher based on your eligibility and income profile. Apply with us today to buy the house you dream of.
*Terms and conditions apply
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