I availed a Home Loan of ₹50,00,000 at 8.5% , period 360 months. My first EMI starts wef 01/04/2018. EMI is ₹38445.66.
Though I chose 360 months, I wish to close the loan in 200/300 months. Hence instead of going by referring to AMORTISATION chart, I should do some extra remittances, in addition to the regular EMIs. I purchased a 40 page notebook for a ₹10 to write my Home loan account of 50 lakhs.
This is My Home Loan Book.
These are my tools.
I am about to do manual accounting, using the calculator and entering my remittances into “MY HOME LOAN BOOK”. Interest is arrived on monthly basis.
Amount of Loan is 5000000, interest is 8.5, EMI is 38445.66. The interest for ₹1 for 1 month at 8.5% is, 1 x 1/12 ×8.5/100= .0070833333. If I name this a factor ‘F’, F x any amount will be the interest of that amount for one month at 8.5%. Thus 5000000 × 0.0070833333 = 35416.6666, will be monthly interest for 5000000 at 8.5%.
My EMI is 38445.66. I do arrive 38445.66- 35416.6666 as 3029. I am viewing EMI with a different insight.
EMI for 5000000 for 360 months at 8.5 % can be put as:
360 monthly interest of 35416.666 plus 360 installments of 3029. Strangely, 3029 happens to the RD installment which at 8.5% interest will return a maturity value of 5000000 at the end of 360 months. Now it is safe to interpret that EMI consists of 360 numbers of monthly interest along with 360 numbers of RD components, which have maturity value of the loan amount. Again we can interpret as Bank parks the loan amount in the style of FD monthly interest to purchase the Home. Simultaneously, Bank offers to accept RD installments at the same rate, so that it gets maturity value of the loan amount at the end of the chosen period. Thus we accept from the Bank 5000000 as FD for 360 months, at 8.5% with monthly interest of 35416.66 and Bank accepts our 360 RD installments of 3029 at the same rate of 8.5% which will mature for 5000000.
What happens when we top up the RD component by amounts like 500, 1000, 2000 etc. along with the mandatory 3029? . Bank will give interest for this additional amount. This will act as extra remittance. When this RD 3029 along with occasional top ups plus the interest payment for both regular RD and topup , this RD component of the EMI gets the maturity value of 5000000 very earlier than 360 months! At this point, FD can be repaid and thereby, monthly interest payment ceases and loan gets cleared.
Now it is time to start writing my MY HOME LOAN. Here I just use the factor F , 0.0070833333, and a simple calculator. My RD component will be made 3029 plus. Let me go to the notebook. Now examine the few entries.
Page 2.
At the end of 01/10/2018 RD balance in MY NOTE BOOK (RD bal) 46850.12 . Now, what will be the net balance which I owe to the bank. Do this mathematics.
5000000 – 46850.12=4953149.88. This balance will be different from the balance as per the general AMORTIZATION CHART.
On 01/10/2018,assume that the interest rate changes to 8.7%. Now the factor changes to 0.00725.
The monthly interest changes to 5000000 x .00725= 36250.
Now examine the few entries in the note book. (Above image)
Suppose after 30 months from first EMI, i.e. on 01/10/2020, the RD balance is 313000, interest rate is 8.7%, the net liability is,
5000000 – 313000 = 4687000.
Now let us evaluate the status as on 01/10/2020, assuming that the remittances after this is 44500/-, interest being kept as 8.7. Examine the image.
Thus having repaid for 30 months, with extra remittances, the net balance being brought at 4687000, and continuing future average remittance at 44500 per month, and interest rate taken as 8.7%, the loan gets cleared in 200 months from 01/10/2020.
Thus total period is 30 + 200= 230, months, instead of chosen period of 360.
The note book is illustrative only. The manual entry and manual calculation is simple. The movement of RD values are slow at initial stages. But after a few months, the interest values increases. Thereafter the RD balance moves fast.
Thus if we can choose to do some extra remittances along with regular EMI, and we write the RD values in a separate notebook , it may help to reduce the period of EMI.
Now about principal and interest for a financial year.
Collect the certificate from the Bank.
veearesscals 