Home Loan Interest Calculation: How you may save Rs 37 lakh on Rs 80 lakh loan by increasing your EMI by 8.6%
Home Loan Interest Calculation: One can save quite a substantial amount on home loan interest if they increase their EMI amount by a few per cent. They may also pay off their home loan much earlier than the scheduled time.
Home Loan Interest Calculation: In a home loan, the interest amount can be higher than the principal amount if the tenure is long. But a home loan borrower can cut their interest amount and can pay off their loan earlier than the scheduled tenure if they opt for prepayment or a higher EMI amount option. Increasing their EMI by a few thousand rupees can help them save a substantial amount. Not only that, they can also save a lot of years on the repayment. Know what the options are for reducing the interest amount and the tenure and how increasing the EMI by 8.6 per cent can help save nearly 37 lakh and 5 years on a Rs 80 lakh, 25-year loan.
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(Dislcalimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
How home loan interest amount increases
The home loan interest can increase if all loan conditions are the same and the tenure is different. Understand it through a few examples here.
Example of home loan interest amount
If we take a Rs 55 lakh loan at a 10 per cent interest rate, here's how much estimated interest a borrower has to pay if they take it for 15, 20, 25, and 30 years.
In 15 years, estimated interest will be Rs 51,38,591, and the estimated repayment will be Rs 1,06,38,591.
Example of home loan interest amount
In 20 years, estimated interest will be Rs 72,38,286, and the estimated repayment will be Rs 1,27,38,286.
In 25 years, estimated interest will be Rs 94,93,562, and the estimated repayment will be Rs 1,49,93,562.
Example of home loan interest amount
In 30 years, estimated interest will be Rs 1,18,75,917, and the estimated repayment will be Rs 1,73,75,917.
So, here, you can see that the interest amount increases with the loan tenure. If the duration is doubled, the interest amount on the same loan is increasing by approximately 70 per cent.
Ways to reduce loan amount
Prepayment is an option that can be used to reduce the interest amount. One can go for a one-time or part prepayment. They can pay an additional EMI every year. They can also increase their EMI amount every year, or they can opt for a higher EMI amount.
What are advantages of using these options?
It can reduce the interest amount. At the same time, it may also cut the loan tenure by a great deal.
Home loan calculations
In this story, we will take the example of an Rs 80 lakh home loan at a 9.5 per cent interest rate for 25 years. We will show how much interest rate and the tenure can one save if they increase by 8.60 per cent.
What will be home loan EMI?
The estimated home loan EMI for the Rs 80 lakh loan will be Rs 69,896.
What will be interest and repayment?
The estimated interest on this loan will be Rs 1,29,68,720, and the estimated repayment will be Rs 2,09,68,720.
What do we need to do?
We need to increase the EMI amount by 8.60 per cent. It means instead of an estimated EMI of Rs 69,896, one will go for an estimated EMI of Rs 75,907.
What impact will it make?
It will reduce the interest amount as well as the loan tenure.
What will be new interest amount?
The new estimated interest amount will be Rs 93,06,836.
What will be new repayment amount?
The new estimated repayment amount will be Rs 1,73,06,836.
How much amount will be saved?
The estimated amount saved will be Rs 36,61,884.
What will be revised loan tenure?
The revised tenure will be 19 years. So an estimated 6 years will be saved on the tenure.