Home Loan Calculation: How 1 additional EMI every year can save Rs 31.54 lakh and nearly 6 years on Rs 75 lakh, 30-year home loan
Home Loan Calculation: On a long-duration home loan, a borrower may end up paying higher interest amount compared to the principal amount. The borrower can reduce interest by making 1 additional equated monthly instalment (EMI) every year.
Home Loan Calculation: When we talk about a loan, the first picture that strikes our mind is that of a person who is paying heavy interest on the borrowed capital. On home loans, this interest can be quite significant since such loans are high in amount and are taken for durations up to 30 years. There is quite a possibility that in such a high-amount, long-duration loan, one ends up paying a much higher interest than the principal amount. A borrower may find it difficult to pay heavy interest for a long time. But there are ways, such as making a large down payment, prepayment, and additional EMI, that can lighten their interest burden a great deal. In this write-up, we will show how 1 additional EMI payment every year can save approximately Rs 31.50 lakh on a Rs 75 lakh, 30-year home loan.
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(Disclaimer: Our calculations are projections and not advice. Do your own due diligence or consult an expert for your loan strategy.)
How does a home loan work?
One takes a home loan for a long duration, such as 20 years or above. They pay interest on the principal amount. Since the duration is long, the interest one repays can be quite large compared to the principal amount.
How does a home loan work?
E.g., on a Rs 50 lakh home loan for 25 years at a 9.50 interest rate, the estimated EMI will be Rs 43,685, the estimated interest will be Rs 81,05,450, and the estimated repayment will be 1,31,05,450.
Which factors impact home loan interest rate?
The lender checks the borrower's monthly income, Cibil score, creditworthiness, loan repayment capacity, etc. So, there is quite a possibility that two persons with the same monthly income may get the same home loan from the same bank at different interest rates.
How interest amount can be reduced
One can go with a heavy down payment in the beginning and go for a low-amount home loan. The other option is prepayment, which can be in the form of some percentage of the loan amount paid twice or thrice during the loan duration. The borrower can also opt for an additional EMI.
Home loan calculation
For our calculation, we will show a Rs 75 lakh home loan taken at a 9.5 per cent interest rate for 30 years.
What will be EMI and interest?
The estimated EMI on this loan will be Rs 67,527, the estimated interest will be Rs 1,21,58,175, and the estimated repayment will be Rs 1,96,58,175.
What is additional EMI strategy?
Here, the borrower starts making one additional EMI yearly from the second year of the loan disbursal. In this case, it will be Rs 67,527 additional payment every year. It means if the loan is starting this month, one additional EMI will be made in November 2025, and then in the same month in subsequent years.
How will it impact interest?
After paying one additional EMI every year, the new interest amount will be Rs 90,04,709.
How much interest will be saved overall?
The estimated interest saved thus will be Rs 31,53,466.
What will be the new duration?
The new duration of the loan will be reduced from 25 years to an estimated 19 years and 4 months.
How much time will be saved?
The estimated time saved thus will be 5 years and 8 months.