Home Loan Calculator: How to save Rs 16.40 lakh on Rs 55 lakh, 20-year loan and reduce tenure by 42 months
Home Loan Calculator: If 'A' and 'B' take a Rs 50 lakh home loan each at a 9.50 per cent interest rate for 20 and 30 years, 'A' will pay estimated interest of Rs 61,85,574 in 20 years, while 'B' will pay estimated interest of Rs 1,01,35,376 in 30 years. Borrowers can use prepayment, higher EMI, and extra EMI as some of the ways to reduce the home loan epayment amount.
Home Loan Calculator: People in India take home loans for durations up to 30 years. The longer the loan duration, the higher the interest and repayment amounts. Sometimes, interest can be much higher than the principal amount. E.g., if 'A' and 'B' take a Rs 50 lakh home loan each at a 9.50 per cent interest rate for 20 and 30 years, 'A' will pay estimated interest of Rs 61,85,574 in 20 years, while 'B' will pay estimated interest of Rs 1,01,35,376 in 30 years. When people take a home loan, they often set up an equated monthly installment (EMI) according to their monthly income. But as time passes, the income is likely to increase. People may also get salary bonuses, windfalls, property shares, or income from other sources. These sources of extra income can help them reduce the repayment amount, loan tenure, or both if they opt for prepayment, extra EMI, or a higher EMI. In this write-up, through projections, we will show how one can reduce Rs 16.40 lakh in interest on a Rs 55 lakh, 20-year home and also cut down on tenure by 42 months.
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Home loan conditions
We are taking Rs 55 lakh as the principal amount, 9.50 per cent as the annual interest rate, and 20 years as the loan duration.
What will be home loan EMI?
The estimated home loan EMI in this case will be Rs 51,267.
What will be interest and repayment?
The estimated interest will be Rs 68,04,132, and the estimated repayment amount will be Rs 1,23,04,132.
How can interest be reduced?
The interest amount can be reduced by making prepayments.
What will be prepayment amount?
There will be 2 prepayments of Rs 2,75,000 each.
How can prepayments be scheduled?
The first prepayment of Rs 2,75,000 will be in the 36th month, while the second will be in the 48th month of the loan.
How will it impact loan?
Two prepayments will reduce the loan amount by approximately Rs 16,46,726.
What will be new tenure?
The new tenure will be 198 months. It will cut down the loan duration by 42 months.
What if one goes for reduced EMI instead of reduced tenure?
Given the same prepayment condition, if one goes for a reduced EMI instead of duration, their EMI will reduce from Rs 51,267 to estimated Rs 45,742. However, in that case, the estimated savings will be just Rs 5,37,963.
Disclaimer
These are projections and are not investment advice. Please do your own due diligence or consult an expert before financial planning.