Buying a home gives you the comfort of living in your own house and moreover it also provides financial security to your family. Many people fulfil their dream of owning a house by taking a home loan but not all are aware of how they can enjoy tax benefits while they are repaying the loan taken. In terms of house loans, as per the provisions of income tax act one can claim exemption for the repayment of interest as well as principal.
Home loan repayment can be categorised into repayment of principal amount and the interest on the home loan. But to get exemption for interest and principal repayment there are certain limits. In order to know your tax exemption on home loan repayment, you need to have a hand on how interest is calculated.
That is when a home loan calculator or home loan tax calculator comes into the picture. To put it simply, it is a tax benefit calculator which aims to gain tax benefits on home loans. So use a home loan calculator and avoid losing out on some of the tax benefits that home loan repayment offers you.
So how does this home loan tax benefit calculator work?
Sanjay is 34 years old and his yearly income is Rs.10, 00,000. He purchased a house worth Rs.50, 00,000 and availed a loan for Rs.40, 00,000 for the same. The loan tenure is 15 years. The rate of interest is 10.5%. Here is a schedule of his loan repayment.
With the above schedule, in our Home Loan Calculator we get that in early years the major element of EMI (Equated Monthly Installment) is interest and the payment towards principle is less. Your home loan tax calculator will show interest as well as principal payment due after each year. The next column in the table after interest column will show your tax savings each year based on your income portion. While you calculate your tax benefit, 3.5% per annum of growth in your income is considered. To calculate yours, click here – Home Loan Tax Benefit Calculator
Once you look at the final amount for interest you can see that, at present interest rate for like 15 years you result in paying as much interest as your borrowing amount. If the tenure is increased, the total interest payment will increase too.
How is the repayment schedule prepared in this Home Loan Calculator?
At first, EMI payment interest on your first borrowing is calculated for a month. Then this interest amount is reduced from EMI. The difference between the both is taken as your payment towards principal. So for the following month interest is calculated on your reduced principal due after last month’s payment towards principal.
One can also pay more than the EMI or pay a lump sum amount whenever there is a case of excess income or at the time of saving to reduce the interest payment. Lastly, the amount you pay more than your EMI’s goes towards the repayment of principal amount and then interest is reduced outgo in subsequent payments. Also read – Tax Benefits on Home Loans You’re Unaware Of