Jun 15, 2023Home Ally

Mortgage Amortisation In India: Repayment Of Loan Principal And Interest

by Godrej Properties Limited

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Mortgage Amortisation In India

In India, mortgage amortisation follows a standard process seen in other countries. It involves repaying a property loan through regular instalments comprising both principal and interest payments. The loan term extends over a specified period, allowing borrowers to settle their debt obligations gradually.

Loan Principal And Interest Repayment In Indian Mortgage Amortisation

1. Principal Payment

The principal amount is the initial loan amount borrowed from the lender. When you make your monthly mortgage payment, a portion of it goes towards reducing the principal balance. Over time, as you continue to make payments, the principal amount gradually decreases.

2. Interest Payment

The interest is the cost of borrowing the money from the lender. It is calculated based on the outstanding principal balance and the interest rate specified in the loan agreement. Initially, a significant portion of your monthly payment goes towards paying off the interest. However, as the principal balance decreases, the portion of the payment allocated to interest also reduces.

3. Amortisation Schedule

An amortisation schedule is a table that outlines the repayment plan for the mortgage. It provides a monthly payment breakdown, showing the amount applied to principal and interest. In the early years of the mortgage, the interest payment is higher, while the principal payment is relatively more minor. As time progresses, the main payment increases and the interest payment decreases.

4. EMI (Equated Monthly Installment)

In India, mortgages are commonly structured with equated monthly instalments (EMIs). An EMI consists of both principal and interest components. Each month, you make a fixed EMI payment to the lender, which is used to repay the loan over the agreed-upon term gradually (usually years).

5. Prepayment And Part-Payment

Some borrowers choose to make prepayments or part-payments towards their mortgage. Prepayment refers to making additional payments towards the principal amount, reducing the outstanding balance and, subsequently, the interest payable. Part-payment involves paying a lump sum amount to reduce the principal but doesn’t completely eliminate the remaining instalments.

Key Takeaways 

It’s important to note that mortgage terms and conditions can vary among lenders in India. To fully understand the precise details of your mortgage amortisation, it is recommended to review the loan agreement and seek professional advice thoroughly. This ensures a comprehensive understanding of your repayment plan and helps navigate any specific requirements set by the lender.

 

Frequently asked questions

1. What is the principal payment in a mortgage?

Ans. The principal payment is the amount borrowed from the lender to purchase the property. When making mortgage payments, a portion of the payment is applied to reducing the principal balance.

2. How are interest payments calculated in an Indian mortgage?

Ans. Interest payments in an Indian mortgage are calculated based on the outstanding principal balance and the specified interest rate in the loan agreement. Initially, a significant portion of the monthly payment goes towards paying off the interest, and it decreases over time as the principal balance decreases.

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