Plan Home Loan Wisely: What 10% bigger EMI may achieve over the years; 2 situations compared with calculations

Home loans let you create assets for life. They let you direct your savings slowly and steadily into your dream buy. For many homebuyers, planning a home loan is rare event -- and just a dream for several others. This is why it is important to do a little homerk to make the most of a home loan.

In this article, let's compare a scenario where a poential homebuyer decides to put in extra 10 per cent money into their home loan EMI. It is worth noting that this example does not take into account additional costs such as processing fees. 

Home loan interest rate

Some of the largest banks in the country -- public and private alike -- offer home loan interest rates in the range of 7.45–9.25 per cent on loans of Rs 70 lakh.

Assuming an average rate of 8.35 per cent, a Rs 70 lakh loan requires the borrower to pay total interest of Rs 96.98 lakh.

This translates to an EMI of Rs 55,660, according to calculations.

Now, let’s see what happens if you increase your EMI by 10 per cent, to Rs 61,226.

Calculations also show that at this EMI, it will take about 19 years for the borrower to repay the loan.

How much interest can you save this way?

With the shorter tenure, the total interest payable will be about Rs 69.83 lakh.

That means the borrower saves as much as Rs 27.15 lakh in interest compared to the original plan.

Although a longer loan term reduces the immediate financial burden and leaves the borrower with better cash flow for other expenses, it also means paying significantly more in interest over time.