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What is Principal Amount in Home Loan?

Given the high cost of real estate across the country, purchasing a house with your savings alone is extremely difficult. So, it becomes necessary to avail of a home loan to finance your housing needs. A home loan offers substantial finance, up to 75–90% of the property’s cost, at an economical interest rate. When applying for a home loan, you should be acquainted with oft-used terms, such as ‘principal’. If you are wondering what is principal amount in loan, read on to find out.

The home loan principal is the initial amount of funding you receive as a borrower. That said, the term principal can also refer to the total outstanding amount on the home loan. Here, your principal decreases as you repay the loan.

For example, if you avail of a home loan worth Rs.50 lakh, your principal amount in home loan is Rs.50 lakh (initial amount). As repayment progresses, if you manage to clear Rs.30 lakh, the principal can be said to be Rs.20 lakh (outstanding balance).

How to Calculate Principal Amount of Home Loan?

There are various methods you can use to calculate the principal amount you can apply for.

1. Based on your Income and Expenses

The amount of funding you can receive (principal amount) largely depends on your debt-to-income ratio. That is, your current income and fixed obligations determine your repayment capacity and hence, how much funding you can access. To calculate the principal amount based on your income, expenses, age, and city of residence, use the Home Loan Eligibility Calculator.

2. Based on What You Can Afford

To select the ideal principal amount in home loan applications, it makes sense to use a Home Loan EMI calculator. This tool helps you work backwards and arrive at a loan amount and tenor keeping in mind the monthly outgo your budget can handle.

3. Based on the Loan-To-Value (LTV)

Lenders will only finance a percentage (up to 75–90%) of the cost of the home and will require you to make a down payment amounting to the remainder. This ‘margin money’ plays a major role in determining the principal amount in home loan. So, if the LTV is capped at 80% and the property is worth Rs.50 lakh, you can access a principal of up to Rs.40 lakh and will have to pay the rest as a down payment (margin money).

How to Check Principal Amount in Home Loan?

1. Amortization Table

You can check the principal amount in home loan by referring to the amortization schedule. This table shows you your opening balance as well as the principal outstanding at the end of the year. Detailed amortization tables show the contribution each EMI makes towards principal repayment and thus, the principal outstanding after each EMI.

2. Home Loan Statement

An easy way to know your home loan principal amount is to check your home loan statement. It displays information such as the initial loan amount, the amount already repaid, and the outstanding principal. You can obtain your home loan statement by visiting your nearest branch or downloading it from the customer portal.

How to Calculate Principal Repayment of Home Loan for the Financial Year?

Your home loan statement will tell you the amount repaid for the financial year. You can also seek a provisional home loan certificate at the start of the financial year to know the amount payable during that year. Such information is useful for tax planning.

Now that you know what the principal amount in a home loan refers to and how to calculate housing loan principal repayment amounts as the tenor progresses, you are better prepared to take a home loan.

The Bajaj Housing Finance Home Loan offers ample finance on simple home loan eligibility criteria terms for a flexible, 30-year tenor and at an attractive rate of interest. You can even claim an interest subsidy of up to Rs.2.67 lakh as an eligible first-time borrower under PMAY# CLSS.

Apply now and avail of a principal amount commensurate with your eligibility and to your funding needs!

*Terms and conditions apply

#Note: The PMAY subsidy scheme has been not extended by the regulatory authority for MIG I and II categories. Please check the category-wise scheme validity below.

1. EWS and LIG categories are valid up to 31 March 2022

2. MIG I and MIG II categories were valid up to 31 March 2021