Long vs Short Home Loan EMI Calculator: Why does tenure matter in a loan, specially in a home loan? Borrowers take home loans for long durations, such as 15–30 years. In such a long time, they often pay higher interest than the principal amount. But since they need to adjust the loan's equated monthly instalment (EMI) to their monthly income, they need to choose the duration wisely.

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With real estate prices moving faster than growth in average salaries, it is not easy for a person to pick a higher EMI and opt for a lower tenure.

In this write-up, know how a longer home loan tenure can increase interest burden on a borrower, what are the ways to reduce home loan interest, and how one can save approximately Rs 20 lakh on a 50 lakh home loan even if the interest rate in 2 conditions is the same.

Examples of how loan tenure increases interest burden

If one takes a Rs 75 lakh loan at a 9.5 per cent interest rate for 30 years, they will pay an estimated Rs 1,52,03,064 in interest, but if they take the same loan for 25 years, their interest amount will be Rs 1,21,58,175.

It means they will save nearly Rs 30.50 lakh on repayment. 

Let's take the example of a Rs 60 lakh home loan at a 10.50 per cent interest rate for 25 and 20 years.

The estimated interest in 25 years will be Rs 1,09,95,271, but in 20 years, it will be Rs 83,76,670, a difference of Rs 26,18,601 for choosing a 5-year lower tenure.

How you can reduce home loan interest

Before taking a home loan, the basic exercise should be to improve your Cibil score.

A high credit score helps you get a home loan at a lower rate, helping you save huge money during repayment. 

One can get a good start with making a heavy down payment. It will reduce your home loan amount.

One can make prepayments during the loan tenure. By doing so, they will get the option to reduce either their EMI or tenure. 

Home loan borrowers can pay an additional EMI every year, or they can increase their EMI amount every year to repay the loan earlier than the scheduled time.

How to save Rs 20 lakh on Rs 50 lakh home loan

In our calculation, we will take the example of a Rs 50 lakh home loan. The interest rate will be 10 per cent. Loan tenures will be 20 years and 25 years. 

Rs 50 lakh home loan for 25 years

The estimated EMI will be Rs 48,251, the estimated interest will be Rs 65,80,260, and the estimated repayment amount will be Rs 1,15,80,260. 

Rs 50 lakh home loan for 20 years

The estimated EMI will be Rs 45,435, the estimated interest will be Rs 86,30,511, and the estimated repayment amount will be Rs 1,36,30,511.

How much amount will be saved?

The estimated amount saved after going for a 20-year home loan instead of a 25-year home loan will be Rs 20,50,251. 

What if that amount in invested in mutual fund SIP?

At Rs 20,50,251, the estimated monthly amount saved amount in 20 years (240 months) will be Rs 8,543.
 
If that amount is invested in an equity mutual fund through SIP and the investor gets 12 per cent annualised growth on that investment, the estimated corpus generated in 20 years will be Rs 85,35,721.

(Disclaimer: This is not investment advice. Please do your own due diligence or consult an expert for financial planning.)