All About Principal Amount In Home Loan

The EMIs you pay for Home Loans have the principal amount and the interest. The principal amount is the primary amount the receiver borrows from the lender.

In the initial stages, the primary component of your Home Loan will be the interest. However, as the loan term gradually ends, the principal amount will become the more significant component of your EMI. 

Today we explore the principal amount in Home Loans in India in detail to help you make an informed choice. 

What is the Principal Amount on Home Loan?

The principal amount you owe to the lender is the amount you have borrowed. And eventually, you have to pay this amount to the lender.

The principal amount gradually decreases as you start paying back your loan EMIs, and eventually, your loan is closed when you pay back the entire principal amount. 

How to Calculate the Principal Amount?

Calculating the principal amount is easier than it seems. You can use a Home Loan calculator to calculate your principal amount and interest. However, it would help if you remembered that the rate of interest and primary components would keep changing during the tenure of your loan. The formula for calculating the principal amount is P=(I*100)/(N*R), where P is the principal amount, R s the interest rate annually, and N is the period in years. 

Prepayment of Home Loans

When you take a loan for any purpose, be it a Home Loan for women or any other reason, some banks allow you to prepay a part of the loan during the tenure. In a case like this, pay the principal amount, and the interest component gradually decreases.

Even though the interest component lessens, the interest rate remains the same. Suppose you take a loan of Rs. 30 Lakh and prepay Rs. 10 Lakh; your outstanding principal amount is Rs. 20 Lakh. However, the rate of interest will remain the same. Since your principal amount becomes less, the interest you pay also becomes less. 

Foreclosure of Home Loans

A loan foreclosure is the full repayment of the outstanding loan amount in one go. So with foreclosure of Home Loans, you can be debt-free sooner. Some banks allow you to close the loan completely.

In such a case, you need to pay the outstanding amount with the charges and pay back the entire loan. Using the foreclosure calculator, you can calculate the amount you must prepay to close the loan account. 

Difference Between Principal Amount and Interest

The principal amount is the exact amount you borrow as a loan. This amount is what you originally agreed to pay back. For example, if you borrow a Home Loan of Rs. 60 Lakh, your principal amount will be Rs. 60 Lakh. 

On the other hand, interest refers to the money the bank charges on the principal loan. 

How to Decide the Principal Amount

Before you borrow the loan, you need to look up and meet the eligibility criteria of Home Loans. After that, decide the amount you want to borrow as a loan to determine the principal amount. Choosing a reasonable loan amount helps you pay the same during the stipulated time.

So, to decide the loan amount, you need to look at two factors: the amount you need to borrow and how much you will need to pay back. Furthermore, it would help if you kept in mind that the amount you pay back to the bank will always be more than the principal amount you borrow.

Conclusion

The Home Loan principal amount is essential to your loan application, so it is important to know about the same before you borrow. Ensure that you meet all the eligibility requirements of a Home Loan so that your Home Loan gets approved quickly.


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