Home Loan Calculator: How raising EMI by nearly 8% can save Rs 14.19 lakh and 42 months on Rs 60 lakh, 20-year loan
Home Loan Calculator: When you take a home loan for 20 years, there is a strong likelihood that the interest amount can be much larger than the principal amount. In such a case, increasing the EMI amount, going for an extra amount, or prepayment can be ways to reduce the interest on the loan.
Home Loan Calculator: Owning a home is a necessity for most of us. Some buy it early in their career, some delay it for their other financial goals. But real estate is expensive, and the majority of home buyers depend on home loans to realise their sweet home dreams. When they take a home loan, it is mostly for a long duration, so they pay heavy interest on the principal amount. When the loan is for 20 years or more, there is a strong likelihood that the interest they pay during that duration is higher than the principal amount. To lighten the burden of the interest amount, some of the effective ways can be to increase the EMI amount, going for an extra EMI every year, making a heavy down payment, or making prepayments. In this write-up, we will tell how one can save more than Rs 14.18 lakh and 3.5 years on a Rs 60 lakh, 20-year home loan if they increase their EMI amount by just 8 per cent.
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How home loan works
Since home loans are for the long term, the interest amount can be quite higher than the principal. E.g., if you take a Rs 50 lakh loan at 9 per cent annual interest for 20 years, the estimated equated monthly instalment (EMI) will be Rs 44,986, the estimated interest will be Rs 57,96,711, and the estimated repayment amount will be Rs 1,07,96,711. Here, you can see that the interest is higher than the principal amount.
Longer the loan period, higher the interest
If you take a Rs 50 lakh home loan for 25 years, the estimated EMI will be Rs 41,960, but the estimated interest amount will increase to Rs 75,87,945.
Home loan calculations
For our story, we will take the example of a Rs 60 lakh loan for 20 years at a 9 per cent annual interest rate.
What will be EMI?
The estimated EMI for that loan will be Rs 53,984.
What will be interest and repayment?
The estimated interest amount on that loan will be Rs 69,56,054, and the estimated repayment will be Rs 1,29,56,054.
How to reduce interest on loan
We will take the example of, instead of going for a Rs 53,984 EMI, increasing the EMI amount by nearly 8 per cent.
Is it possible on a tight budget?
It depends on priorities. If one delays other expenses and prefers increasing the EMI amount, they will lighten the loan burden considerably in the long run. Sometimes, going for a higher EMI appears to be tough, but as income increases, the adjustment can become easy. Another option is to go with a lower EMI initially, and as income increases, boost the EMI amount from the third or fourth year onwards.
How will 8% increase impact home loan?
If one goes for a Rs 58,272 EMI, which is 7.94 per cent more than the earlier EMI of Rs 53,984, it will not only reduce interest but will also shorten the loan duration.
What will be new interest and repayment amounts?
After going for a higher loan EMI, the new estimated interest amount will be Rs 55,37,877, and the estimated repayment amount will be Rs 1,15,37,877.
How much money will be saved?
The estimated money saved in that way will be Rs 14,18,177.
What will be new loan tenure?
Instead of 20 years, the loan can be paid off in 16.5 years.
Disclaimer
Actual calculations may vary from bank to bank. Do your due diligence or consult an advisor for home loan strategy.