As a financial product, home loans are popular because they let you create assets for life. For many homebuyers, taking a loan is a rare event—and just a dream for several others. So why not take the time to do everything possible to make it work a little more in your favour? In this article, we take a simple situation to understand what really happens—and how much money you can save—if you inflate your EMI budget by 10 per cent.
Some of the largest banks in the country—public and private—offer home loan interest rates in the range of 7.45–9.25 per cent on loans of Rs 70 lakh.
Assuming an average rate of 8.35 per cent, a Rs 70 lakh loan requires the borrower to pay total interest of Rs 96.98 lakh. This translates to an EMI of Rs 55,660, according to calculations.
Now, let’s see what happens if you increase your EMI by 10 per cent, to Rs 61,226.
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Calculations show that at this EMI, it will take about 19 years for the borrower to repay the loan.
With the shorter tenure, the total interest payable will be about Rs 69.83 lakh. That means the borrower saves as much as Rs 27.15 lakh in interest compared to the original plan.
Although a longer loan term reduces the immediate financial burden and leaves the borrower with better cash flow for other expenses, it also means paying significantly more in interest over time.
It is worth noting that this example does not take into account additional costs such as processing fees.