Ever wonder how your EMI goes towards repaying your home loan? Or any other loan, for that matter?
When lenders decide on an EMI, they have a specific plan as to how each EMI is segregated into principal and interest components. This is called loan amortization. Therefore,
Welcome to our loan amortization calculator!
Here is how this calculator helps you: It has four fields loan amount, tenure, EMI amount, and number of installments already paid. When you enter the relevant data into the fields, the calculator gives you the outstanding loan amount; that is, what is left to be paid back.
But that is not all. Where this calculator scores heavily is via the two pie-charts on the left. When you enter the above-mentioned numbers into the field, the pie-charts update accordingly.
- The pie-chart on top tells you the segregation of principal and interest of the total amount you have repaid till date.
- The chart below that indicates the principal and interest components on the amount yet to be paid at even date.
How does this information help you? This information can help you decide whether it is a good idea to pre-pay your loan. What would be the main reason that you would want to pre-pay your loan? To save on the interest paid out on the loan, would be the most obvious answer. You will see on using the calculator that the interest paid out on your home loan is quite a sum. Another reason could be to reduce your burden of debt and have free and clear possession of your home. In either case, you need to decide if it is worth pre-paying the loan.
Your EMIs are designed to ensure that in the initial years of repayment, the interest component is bigger than the principal amount; i.e. you pay a large amount of interest back in your initial years of loan repayment. The interest component keeps decreasing as the loan tenure winds down, with the principal component increasing accordingly. In the last few years of your loan tenure, the principal component will be far bigger than the interest component.
When you prepay your loan, you prepay the principal amount. Your prepayment decision should be based on saving on the interest component. What happens if it is the other way round the principal component is larger than the interest component in the pie chart? In this case, it would be a better idea to continue paying your EMIs and investing the amount set aside for pre-payment in financial instruments that suits your style.
The amortization calculator can thus act as a useful and effective indicator when it comes to deciding if you want to prepay.
Note: All calculators and comparators are made based on certain assumptions which may not be true in your case. You should consult your personal financial advisor before taking any decision. Apnaloan disclaims any responsibility for any decision taken based on these calculators and comparators.