Buying a house is everyone’s dream, but the home loan taken to take home is to be repaid for many years, which increases the weight of interest significantly. The total interest amount becomes very high due to the long period of home loan. But if you work with a little wisdom, then you can save big interest in interest and get a chance to repay the loan quickly. Let’s know how…
Pre-payment magic
When you take a home loan, you fill EMI every month. But if you do some extra money i.e. partial pre-paying from time to time, then your loan can end quickly and you also save a lot of interest in interest. Parel prepament means that you pay some additional amount to the bank once or after some time in addition to your regular EMI. This reduces your outstanding loan and the total amount of interest is also reduced.
Calculation to save 28 lakhs
Suppose you have taken a floating rate home loan of Rs 40 lakh, whose interest rate is 8.5% and the duration is 25 years. Your monthly EMI will be around Rs 32,209. If you only fill regular EMI, then in the entire 25 years you will have to pay a total of Rs 56.63 lakh.
But if you pay an additional Rs 50,000 per annum from the second year of the loan, then your loan period will be reduced by 7 years to about 18 years and the savings of interest will be close to Rs 18.77 lakh. Now if you pay an additional Rs 1 lakh annually, the loan will end in about 14 years and interest savings will reach about Rs 27.58 lakh.
Home Loan Prepayment Calculator
Source: fisdom
Benefits of pre-payment in floating rate home loan
Floating interest rate is the interest rate that varies depending on market conditions. The biggest advantage of floating rate home loan is that you can do a Parsely or complete prepament without any penalty at any time. Meaning when you have extra money, you can use them to reduce the dues of the loan. This will reduce the burden of interest on you and the loan will end quickly.