Curated By: Business Desk
Last Updated: September 27, 2023, 12:27 IST
Owning a home in India remains one of the cherished dreams of many people. Fulfilling this objective becomes difficult with high real estate prices and the requirement for financial assistance to run the household. Home loan makes this task comparatively easier but this also feels like a burden to pay with the increasing interest rates. This article describes how to pay a 25-year home loan in a much shorter 10-year period.
It can be paid in this short time by paying 1 extra EMI instalment each year and increasing the EMI by 7.5 per cent each year. For example- someone has taken a home loan of Rs 50 lakh at 8.5 per cent interest and it has to be repaid in 25 years. In this case, the monthly EMI, for paying the entire loan, will be Rs 40,261. It will take 25 years to repay the loan if that person is not paying any extra EMI. Adding on to this, they will also have to pay an interest of Rs 70 to 71 lakh taken on a principal amount of Rs 50 lakh. That means the total payment (compound interest) paid at the end will be close to Rs 1.20 crore.
If anyone pays the loan of Rs 50 lakh using the method of the extra EMI, this means that they will pay 13 EMIs instead of paying 12 EMIs of Rs 40,261 every year. Now, how will this help the people? Doing this step can bring down the home loan paying tenure from 25 years to about 19-20 years. In addition, people can also save more than Rs 18 lakh in interest costs. They can try to pay the EMI with a monthly sum of Rs 3-4,000 if they find it difficult to pay the EMI of Rs 40,261. The money to increase the EMI amount can be earned by the salary increment or interest earned from other investments.
In the second step, people can increase their monthly EMI by 7.5 per cent every year, i.e-Rs 3,019, and their loan will be repaid in just 12 years. If they apply both techniques, i.e.- paying one EMI extra every year and increasing the EMI by 7.5 per cent, then the 25-year home loan can be repaid in 10 years. In such a situation, people will also save about Rs 30 lakh in the form of interest.