How 1 additional EMI payment every year can help save Rs 20.39 lakh in interest and 4 years, 9 months in tenure on Rs 60 lakh loan
Home Loan Repayment With Additional EMI: A borrower often repays higher interest than the principal amount. One of the effective ways to reduce interest significantly is to pay an additional equated monthly instalment (EMI) every year.
Home Loan EMI Calculator: Home loans are high amounts and are taken for durations of 15 years and more. So, what happens when one takes a home loan? They repay a higher interest amount than the principal, which makes the repayment amount substantially high. But there are ways to reduce this amount, which can also cut the loan repayment tenure.
Photos: Unsplash/Pixabay
(Disclaimer: This is not financial planning advice. Do your own due diligence or consult an expert before financial planning.)
How one can reduce home loan interest
They can opt for prepayment options. The prepayment can be made in one go or in instalments. Banks generally put a lock-in period for prepayment. It can be 3 years.
What happens when one makes prepayment?
The bank gives 2 options to such borrowers. They can either opt for a reduced EMI or the same EMI.
What if they chose same EMI after prepayment?
The loan tenure remains the same, but the interest amount reduces.
What if they opt for a reduced EMI?
In that case, their interest amount and the loan tenure will reduce significantly. One needs to do their maths to choose either option.
How one can make additional EMI?
One can opt for an additional EMI every year. They can begin their additional EMI 3 years after their loan tenure begins. They can adjust to their increased income.
What will be benefit of additional EMI every year?
Their interest amount will reduce, and the loan tenure will also be cut.
Home loan
We are calculating a Rs 60 lakh home at 9.5 per cent interest rate for 25 years.
What will be home loan EMI?
The estimated EMI will be Rs 52,422, and the estimated interest will be Rs 97,26,540, and the estimated repayment amount will be Rs 1,57,26,540.
When can one start making additional EMI?
They can start making an additional EMI worth Rs 52,422 from the fourth year, i.e., if the loan has started in December 2024, the first additional EMI will be paid from January 1, 2028.
How much interest will be saved?
After paying one additional EMI every year from the 4th year onwards, the estimated interest will be cut from Rs 97,26,540 to Rs 76,88,076, a difference of Rs 20,38,464.
What will be new loan tenure?
The estimated tenure will be cut by 4 years and 9 months.