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Earlier, owning a home remained just a dream for many. However, now, it is a realistic and achievable goal for several thanks to Home Loans. You can apply for a Home Loan at any leading bank or Non-Banking Financial Company (NBFC). The processing is simple, whether you do it offline or online.
On approval, the bank offers a fair Loan amount based on your eligibility and requirement. Its disbursal takes place in a structured manner, making home financing easier. The Home Loan amount can be broadly classified into two parts: principal amount and interest. This blog explains both concepts in brief.
What is the principal amount of a Home Loan?
The principal amount is the sum of money you primarily borrow from the bank for home financing. For example, if you borrow 50 lakhs from the bank, then this 50 lakhs is the principal amount. The principal amount is the biggest component of your Home Loan. Hence, it impacts the payable EMI. Generally, a higher principal amount translates to a considerable EMI amount and vice versa.
Make use of a Home Loan EMI calculator to understand how the principal amount affects various Loan components. When it comes to how the bank provides the principal amount, it depends on your Home Loan eligibility. A strong eligibility helps you draw in a significant Loan amount.
So, work towards building and maintaining strong eligibility, as it will ensure that your financing doesn’t fall short for your dream home purchase.
What is the interest component of a Home Loan?
The interest component is the cost of borrowing you need to bear with your Home Loan. It is calculated on your principal amount for the entire tenure. Home Loan interest rates vary by bank. Hence, compare all bank offers at hand to obtain the best interest rate.
The interest rates also differ for each applicant, as it’s based on individual Home Loan eligibility factors. Good eligibility helps you fetch a more competitive interest rate compared to others. Therefore, strive for it.
A competitive interest rate keeps the cost of borrowing in check. It also brings down the EMI amount, making the Loan affordable.
Here again, the Home Loan EMI calculator comes in handy. It helps you clearly understand the impact Home Loan interest rates have on all Loan components.
Visit any banking and financial website or mobile app to access the Home Loan EMI calculator. You can use the calculator as many times as you like, free of charge.
What is the relation between the principal amount and interest in a Home Loan?
The principal amount and interest component of a Home Loan are closely tied to each other.
This is because the interest calculation is based on the principal amount. A higher principal amount translates to a significant interest liability.
This is why, in the initial tenure period, the interest component of the EMIs tends to be higher. This interest component gradually decreases as the principal amount gets repaid.
Therefore, it is advisable to make a higher down payment. It reduces the principal amount, which in turn lowers the interest liability.
You should also consider making pre-payments, which means repaying the EMI before its due date. This against brings down the principal amount and the interest liability associated with it.
Summing It Up:
Realise your dream of buying a house by applying for a Home Loan. From processing to disbursal, the entire process takes place systematically. This makes Home Loan financing easier.
The Home Loan amount is classified into two parts: principal amount and interest component. The principal amount is the sum of money you borrow from the bank. The interest is the cost you pay for borrowing these funds. Ideally, a strong eligibility helps you obtain a higher principal amount and a competitive interest rate. Hence, works towards it.
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