If you’re thinking of buying a home, we’re sure you are also looking at how to get a home loan to help you finance your purchase. Well, don’t put off your home buying any longer, NOW is a good time to buy as interest rates have dropped and you just might be able to buy your dream home within your budget. But, if you need some clarity on how a home loan works, and how to calculate the principal amount in a home loan, you’re not alone. Read on to get answers to your questions.
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What is the Principal Amount of a Home Loan?
When you are applying for a home loan you normally need to look at two things, the first is how much you need to borrow and the second is how much you will need to pay back.
The amount you borrow will always be less than the amount that you need to pay back, banks and other lenders charge interest on the amount you borrow. This rate of interest varies from bank to bank and lender to lender. This is why when you have an EMI (equated monthly instalment) you will notice that it is broken into two components –
- Principal – what you borrow and what you have to pay back
- Interest – the fees the lender or bank charges you for lending you the money.
How do you Calculate the Principal Amount in a Home Loan?
This is not as complex as you think, there is an easy formula that you can use to calculate the principal amount in a home loan –
P=(I*100)/(N*R)
Where is the amount of interest?
P is the principal amount
R is the Rate of interest annually
N is the time period in years
Let’s suppose a bank sanctioned a home loan of Rs.5 lakhs to you at the rate of 7.35% P.A. for 10 years.
In this example, the simple interest amount for all years will be Rs.3,67,500/- {5 lakhs*10yrs*7.35%}. Now in a span of 10 years, you must pay the bank a total of Rs.8,67,500/- i.e. (Original amount which bank has sanctioned + interest amount on loan). Here in this example, Rs.5 lakhs which the bank already sanctioned is the principal amount of the home loan.
Read: What is MCLR Home Loan & How does It affect Housing Loans?
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Now we will calculate the principal amount as follows: –
P= (Amount of interest*100)/ (rate of interest *number of years)
= (367500*100)/ (7.35*10)
=Rs. 5,00,000/-
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It’s that simple! But, if you need any help with getting a home loan for your house just click below, or even finding the right house for you, let NoBroker help. You can even drop a comment below and we will get in touch with you to assist you.
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FAQ’s
Q1. How to Calculate Principal Repayment of Home Loan for the Financial Year?
Ans. EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]
Using this mathematical formula, you can calculate the principal repayment amount of a home loan.
Q2. How to Check Principal Amount in Home Loan?
Ans. The easiest way to check the principal amount in a home loan is by checking the home loan statement. It contains the necessary information like home loan amount and tenure.
Q3. How To Calculate the Principal Amount of a Home Loan?
Ans. Use the formula I = PRT to calculate the principal amount.
Q4. What is a principal interest rate?
Ans. In a loan with an interest rate, a borrowing fee is levied on the borrower every month for the outstanding loan amount. This is known as a principal interest rate.
Read: Poonawalla Housing Finance the Password to the Home of Your Dreams
Q5. What is the formula for calculating the principal and interest rate in a home loan?
Ans. The basic formula for calculating the home loan principal amount is P=I/RT
Great Information…. Thanks to share easy calculation steps to know Interest amount… Now I can check easily how much am paying to bank…. We would like to get more knowledge from you… Thanks again
Very much informative… Gets the concept Clear in this regards. Easy to understand
Good Insite. Nicely Simplified..
Thanks for the eye-opener.
Very nice article 👌👍
Esey way to calculat home loan calculations… Thanks many use formula… Thanks
Nice article …very useful information
Very nice 👌👌
With example…
Nice, very informative, great job CA AKSHAY SIR
NICE BROTHER….AFTER READING THE ARTICLE IT WILL BE VERY EASY FOR UPCOMING HOME LOAN APPLICANT.
Very nice Akshay Sir