All about Home Loan and it's process

What is EMI, Monthly interest, principal and outstanding balance in home loan with example.

EMI stands for Equated Monthly Installment, which is the fixed amount of money that a borrower pays to a lender on a monthly basis to repay a home loan. This amount consists of both principal and interest payments.

Let's take an example of a home loan of Rs. 50 lakhs, taken at an interest rate of 8% per annum, and for a tenure of 20 years.

To calculate the EMI, we can use the following formula:

EMI = [P x R x (1+R)^N] / [(1+R)^N-1]

Where,

P = Principal amount (in this case, Rs. 50 lakhs) R = Rate of interest per month (8%/12 = 0.00667) N = Loan tenure in months (20 years x 12 months = 240)

Using the above formula, the EMI for this home loan would be:

EMI = [50,00,000 x 0.00667 x (1+0.00667)^240] / [(1+0.00667)^240-1] = Rs. 43,615

This means that the borrower would have to pay Rs. 43,615 every month for 20 years to repay the loan.

Monthly interest is the interest component of the EMI that the borrower pays to the lender every month. In the first month of the loan, the monthly interest would be calculated as follows:

Monthly interest = (Outstanding loan amount x Rate of interest per month) = (50,00,000 x 0.00667) = Rs. 33,350

The principal component of the EMI is the portion of the monthly payment that goes towards reducing the outstanding loan amount. In the first month of the loan, the principal component would be:

Principal component = (EMI - Monthly interest) = (43,615 - 33,350) = Rs. 10,265

The outstanding balance is the remaining balance on the loan after the borrower has made a certain number of EMI payments. In the first month of the loan, the outstanding balance would be:

Outstanding balance = (Principal amount - Principal component) = (50,00,000 - 10,265) = Rs. 49,89,735

As the borrower continues to make EMI payments, the outstanding balance reduces, and the interest component of the EMI reduces while the principal component increases.

What is part period inter in home loan?

A part period interest in home loan is the interest charged by the lender for the period between the disbursement of the loan and the start of the regular EMI payments.

When a borrower takes a home loan, the loan amount is not usually disbursed in full at once. Instead, it is disbursed in stages as per the construction progress or property acquisition. The interest on the disbursed amount is charged from the date of disbursement until the start of the regular EMI payments, and this period is known as the part-period interest.

For example, let's say a borrower takes a home loan of Rs. 50 lakhs and the loan is disbursed in three stages, i.e., Rs. 20 lakhs at the first stage, Rs. 20 lakhs at the second stage, and Rs. 10 lakhs at the third stage. The regular EMI payments will start once the final disbursement is made. However, the borrower will be liable to pay interest on the disbursed amounts from the date of disbursement until the start of the regular EMI payments. This period is known as the part-period interest.

The part-period interest is calculated on a daily or monthly basis, depending on the lender's policy. The interest rate for the part-period interest is generally higher than the regular EMI interest rate, as it is charged on a smaller amount and for a shorter period. It is important for the borrower to factor in the part-period interest while calculating the overall cost of the loan.

example to understand the concept of part-period interest in a home loan.

Suppose Mr. A takes a home loan of Rs. 50 lakhs at an interest rate of 8% per annum for a tenure of 20 years. The loan is disbursed in three stages, as follows:

• First Disbursement: Rs. 20 lakhs on January 1, 2023
• Second Disbursement: Rs. 20 lakhs on May 1, 2023
• Third Disbursement: Rs. 10 lakhs on September 1, 2023

The regular EMI payments will start from December 1, 2023, and will continue for the next 20 years.

Now, let's calculate the part-period interest for each disbursement. We assume that the interest is calculated on a monthly basis.

For the first disbursement, the part-period interest will be calculated from January 1, 2023, to November 30, 2023, which is the month before the regular EMI payments start. The number of months is 11.

Part-Period Interest for First Disbursement = (20,00,000 x 8% x 11)/12 = Rs. 1,46,667

Similarly, the part-period interest for the second and third disbursement can be calculated as follows:

Part-Period Interest for Second Disbursement = (20,00,000 x 8% x 7)/12 = Rs. 93,333

Part-Period Interest for Third Disbursement = (10,00,000 x 8% x 3)/12 = Rs. 20,000

Thus, the total part-period interest for the home loan will be Rs. 2,60,000 (Rs. 1,46,667 + Rs. 93,333 + Rs. 20,000). This amount will be added to the principal amount of the loan, and the EMI payments will be calculated based on the revised loan amount.

It's important to note that the calculation of part-period interest may vary depending on the lender's policies and the terms and conditions of the loan agreement. Therefore, borrowers should carefully read and understand the loan agreement before signing it.

Till how much time A have to pay part period inter?

The duration for which the borrower has to pay part-period interest on a home loan depends on the lender's policy and the terms of the loan agreement. Typically, the duration of the part-period interest is from the date of the disbursement of the loan until the start of the regular EMI payments.

In most cases, the regular EMI payments start after the final disbursement of the loan. For example, if a borrower takes a home loan of Rs. 50 lakhs and the loan is disbursed in three stages, the regular EMI payments will start after the final disbursement of Rs. 10 lakhs. The borrower will have to pay part-period interest on the first and second disbursement until the start of the regular EMI payments.

It's important to note that the calculation of part-period interest may vary depending on the lender's policies and the terms and conditions of the loan agreement. Therefore, borrowers should carefully read and understand the loan agreement before signing it and should clarify any doubts regarding the part-period interest calculation with the lender.

What is Part period inter (dr) and part period inter (cr) means in loan account?

Part-period interest (dr) and part-period interest (cr) are two types of accounting entries related to part-period interest in a loan account.

Part-period interest (dr) refers to the amount of part-period interest charged to the borrower by the lender, and it is debited to the borrower's loan account. This means that the borrower owes this amount to the lender and it will be added to the outstanding balance of the loan.

Part-period interest (cr), on the other hand, refers to the amount of part-period interest paid by the borrower to the lender. This means that the borrower has reduced the amount owed to the lender by this amount, and it is credited to the borrower's loan account.

For example, suppose a borrower takes a home loan of Rs. 50 lakhs and the loan is disbursed in three stages. If the borrower has to pay part-period interest of Rs. 5,000 for the first stage of disbursement, the lender will debit this amount to the borrower's loan account as part-period interest (dr). If the borrower pays Rs. 5,000 towards the part-period interest, the lender will credit this amount to the borrower's loan account as part-period interest (cr).

In summary, part-period interest (dr) is the amount of interest charged by the lender and part-period interest (cr) is the amount paid by the borrower.

What is CYYTD and PYYTD interest?

CYYTD and PYYTD are two types of interest calculations used by lenders to calculate the interest due on a loan.

CYYTD stands for "Current Year Year-to-Date" interest, and it refers to the total interest accrued on the loan during the current calendar year, from January 1 to the present date. This type of interest calculation is often used by lenders to provide borrowers with a summary of the interest due on their loan for the current year.

PYYTD, on the other hand, stands for "Previous Year Year-to-Date" interest, and it refers to the total interest accrued on the loan during the previous calendar year, from January 1 to December 31 of the previous year. This type of interest calculation is often used by lenders to provide borrowers with a summary of the interest due on their loan for the previous year.

Both CYYTD and PYYTD interest calculations are used to help borrowers understand the interest due on their loans and to keep track of their loan payments. They are often included in loan statements and can be useful in helping borrowers to plan their finances and manage their loan payments.