Home loan repayment strategy that can do wonders

financialexpress.com:

Owning a home is the biggest dream for the majority of Indians. As housing has become one of the most expensive investments in one’s lifetime, one may not be able to go about it without the help of a home loan — which in turn, is high in amount and has a longer repayment duration.

So, how can you cut down on your repayment time? How well can your finances be managed so that you can afford that vacation your family is looking forward to? If you keep your EMIs low, the tenure is longer and you end up paying heavy interest on the principal amount.

The question to ask is — how much higher can an EMI be? And what effect does it have on your loan? Let’s take an example. Supposing you have availed of a home loan for Rs 50 lakh at an 8.5 per cent interest rate for 20 years — your monthly EMI comes to around Rs 43,237, and the total interest you’d end up paying comes to around Rs 54.13 lakh and the total repayment cost in 20 years at Rs 1.04 crore.

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What if you want to finish off the loan in 15 years? A small calculation would bring your EMI to Rs 49,237, amounting to a total interest of Rs 38.62 lakh, and a total repayment of Rs 88.62 lakh.

In simple words, an extra Rs 5,846 a month can help you cut five years of loan repayment time and not burn a Rs 15.38-lakh hole in your pocket!

Every extra penny you pay on the EMI gets added to your principal amount, thereby reducing the total interest you are supposed to pay the lender. It all seems great on paper, but may not be that easy with your other monthly financial commitments. However, a few adjustments here and there for the first few years can benefit you in the long run.

Put your savings to good