Amortization: All you need to know
While it is very commonplace to take out loans, it is advisable to resolve them as quickly as possible. To do that, you need to make regular payments to cancel out your debt. But just paying them regularly is not enough, you need to be smart about it. It’s essential to have a basic idea of the various terms and processes like loan amortization and Amortization Schedule, as this makes your loan repayment an easy affair.
What is Amortization?
Amortization is a financial term for the process of dividing the cost of an intangible asset over a period of time. The capital expense for an intangible asset is spread out over a specific period of time for tax purposes.
It also signifies the repayment of loan principal over a period of time. The debt is paid off in regular instalments with a definite repayment schedule. Consumers usually encounter amortization with a mortgage or car loan.
How it Works
Let’s assume Company ABC has an outstanding loan of Rs 1 crore. If Company ABC repays Rs 50,000 of that principal every year, we would say that Rs 50,000 of the loan has amortized each year.
Similarly, in the context of a home loan, amortization is the process by which loan principal decreases over the life of a loan. Here, with each mortgage payment, a portion of the payment is goes towards reducing the principal, and the other portion of the payment pays off the interest. This is referred to as Loan Amortization. When opting for a home loan, make sure your loan scheme includes quick approvals with easy and fast online banking facilities. One such Home Loan scheme, proposed by Bajaj Finserv, offers incentives like nil prepayment and zero foreclosure charges.
What is an Amortization Schedule?
A Home Loan Amortization Schedule in India is a table, which details each periodic payment on a mortgage, as generated by an amortization calculator. Each payment to the home loan lender will comprise of a portion of principal and a portion of the interest. The calculations for an amortizing loan are performed using time value of money formulas, known as the Loan Amortization formula.
Amortization table is a schedule that imparts important information about the loan to the customer. It can save both time and money if used properly.
The Amortization chart contains all the details about the loan like the amount borrowed, the period of scheduled payments, and tax payments the lender makes. The Amortization schedule will then show each payment to be made, along with the amount being deducted as the principal and interest from the loan. It also reports the new balance after each payment.
As you will observe, the principal amount decreases with each payment. You will now know exactly when your home loan will be paid off. If you are applying for a personal loan then consider factors like ease of approval and repayment, foreclosure charges, and the duration of the grace period before zeroing in on one. Bajaj Finserv offers nil foreclosure charges on Personal Loans to facilitate ease of repayment. It also boasts of 5 minute approvals on their online applications.