Demystifying Home Loan EMIs: What They Don’t Tell You

financialexpress.com:

Do you have a home loan outstanding or are you planning to take a home loan? If ‘Yes’, do you really understand the nuances of how a home loan EMI works?  Let’s find out. 

Try and answer these 3 questions. 

Assume you have taken a home loan of Rs 50 lakhs at 8.50% interest for a tenure of 20 years with an EMI of Rs 43,391.

Question 1: In the first 5 years you would have paid a total EMI of ~Rs 26 lakhs (read as more than 50% of your original loan amount). How much of your principal loan amount have you repaid?

Option A – 30% to 40%

Option B – 20% to 30% 

Option C – less than 15%

Question 2: For the 20-year home loan, how long does it take to repay 50% of the loan amount (principal)?

Option A – 10 years

Option B – 12 years

Option C – 14 years

Question 3: For the loan of Rs 50 lakhs, what is the total EMI amount that you pay over 20 years? 

Option A – Rs 70 lakhs to Rs 80 lakhs

Option B – Rs 80 lakhs to Rs 90 lakhs 

Option C – more than Rs 1 cr 

Now let’s check if you got them right!

The correct answers are, 

Question 1: In the first 5 years you would have paid a total EMI of ~Rs 26 lakhs (read as more than 50% of your original loan amount). How much of your principal loan amount have you repaid?

Correct Answer – Option C (less than 15%) – its actually 12%!

Question 2:  For the 20-year home loan, how long does it take to repay 50% of the loan amount (principal)?

Correct Answer – Option C (14 to 15 years)

Question 3: For Rs 50 lakhs home loan, what is the total EMI amount that you pay over 20 years? 

Correct Answer – Option C (more than 1 cr) – its 1.04 crs

Surprised? Here is the evidence – the Detailed Home Loan EMI table which shows the 20-year journey

INSIGHT 1: During the initial years, most of your EMI goes only for