Calculating the home loan principal is essential for filing income tax returns or to evaluate the performance of your loan. Here are 4 ways to calculate your home loan principal:


  1. Check the Loan Provisional Certificate
    This document outlines your loan details, including the interest and principal paid in a financial year, and serves as proof of repayment for income tax filing. You can log onto your lender's website or app to access the home loan summary statement, loan provisional certificate, and other relevant documents.  Here's how:

  • Sign in to your bank or NBFC's website or app using your user ID and password

  • Navigate to the home loan tab, enter your home loan account number, and provide other required details

  • Download or email the certificate to yourself

You can also visit the nearest lender’s branch and ask them for the loan provisional
certificate by submitting your PAN card.


  1. Calculate using excel formulas 
    Cumulative Principal (CUMPRINC): =CUMPRINC(i, n, p, start_period, end_period, type)

    How to calculate the cumulative payments done in the 1st year of your loan?

    Example: Let’s say you have taken a home loan of 50 Lakh for a period of 20 years at an interest rate of 8% per annum.

    Here’s how you can calculate the cumulative principal paid in the 1st year:

  • Monthly Interest Rate (i): 0.0067  (8% annual rate divided by 12)

  • Loan tenure in months (n) = 240

  • Start Period: 1

  • End Period: 12

  • Principal amount (p) = ₹50,00,000

  • Type: 1 ((Paid at start(1) or end(0) of each month)

Cumulative Principal Paid: ₹138,096
Strategies to reduce your interest burden:

  1. Maximise down payments and make prepayments:
    Higher down payments and prepayments reduce your overall principal amount resulting in lower outflow over time. Any windfall you receive (like an annual bonus) can be committed towards loan repayment, thus lowering burden. 
    Let's take a quick example to look at how prepayments can help you quickly become debt free. 

 

Assumptions

Loan Amount: ₹50,00,000; Interest Rate: 9% pa; Tenure: 20 years

Implied EMI (per month): ₹44,986 


Scenarios*

Tenure / Effective Tenure (approx years)

Total payout (₹)

Savings (₹)

No Prepayment

20.0

1,07,96,711

NA

1 EMI prepaid per annum*

16.5

89,30,850

18,65,861

2 EMIs prepaid per annum* 

14.3

77,64,127

30,32,584


* Assumptions: Starting from Year 2. EMI repayment occurs on the 1st and 6th month of each year as applicable.

 

  1. Increase EMIs annually: 
    Keep increasing your EMIs as your salary increases. This will also help you reduce the tenure of your loan.  Keeping the above loan assumptions constant, if you just increase your EMI by 5% every year, you effectively lower your loan tenure from 20 years to ~12 years, lowering total outflow to ₹86,53,069; a savings in total outflow of ₹21,43,642.


  1. Opt for a lower tenure of your loan: 

Principal  borrowed for a longer period results in higher effective interest as the lending charges increase with time.


Let's take a quick example. 

Loan Amount: ₹50,00,0000; Interest Rate: 9% pa  



Scenarios


Tenure of 20 years

Tenure of 30 years

Monthly EMI (₹)

44,986

40,231

Total Payout (₹)

1,07,96,711

1,44,83,207

Savings (₹)

36,86,496



Yes, the extra EMI of ₹4,755 in case of a 20 year tenure may pinch a little at the beginning, but over the life of the loan, you will end up saving a meaningful amount in case of a lower tenure. 


  1. Refinance your loan: 
    If you find a lower interest rate option, plan to switch to it while accounting for the refinancing charges. You can use online calculators available with different lenders.


  1. Maintain affordability: 
    Ensure your total EMIs are 30-40% of your income to better manage your finances and reduce the chances of default.


This simplified approach helps in managing your loan more effectively and in reducing the interest burden significantly.