The moment we dream about buying a house, then Home loan becomes inevitable part in our life for most of us, even if we disagree.
Who am I?
A monthly salaried person who successfully closed 2 home loans in the last 10 years. Nothing more or Nothing less.
Why this blog is for?
I have observed many borrowers have a lack of clarity on how a home loan works, especially the new home buyers. I thought to cover a few basic points regarding home loans.
Is this blog for you?
Yes, if you are already possessing a home loan or planning to buy one.
However, this blog is going to help peoples or may get them some ideas for those who likes to close the loan as soon as possible.
Not for those peoples, who tactically keep the home loan for longer years as they have ability to redirect the earnings to different investment for better returns.
Caution:
I am not a financial expert, Just a common man who like to help novice people's.
1. "No of Terms" and EMI are proportionally balanced for the same Interest rate.
This means,if the "EMI per month" increased then the "No of Terms" must come down and vice versa is true for the same Interest rate. Both ropes are part of the same game, if one is pulled the other one has to come forward.
Now you have the full rights to ask "Huh...Who don't know this?".
Yes you are right.. everyone know this. But understanding this is very important in real time.
Once I had experience where my EMI was reduced but the number of terms remains same in the bank system due to error, I had to do multiple email conversation and few phone calls to correct this in the system. Honestly Until then I did not understand the proportional balance between EMI and Terms.
For example, Watch the "No of Terms" and "Emi Payable"
2. Pay more Interest amount than the Principal amount for most of the Installments.
This does surprise the home loan borrowers who do not know this information before they complete couple of years of Installments.
For example,
Loan : 2,000,000 Interest rate:9 and Terms 240
We would need to pay a total interest amount of 2, 318,684.59/-
We have to pay Interest amount of 15000 on a total EMI of 17,984 for the first installment
Moving on, It does reduce the Interest amount gradually which is Increasing the Principal after each month,
But only on and after the 149th Installment, the Interest amount we pay will become lesser than the Principal amount on a total term of 240 months(20 years).
3. Choose to reduce your term over the EMI on a prepayment
Our hard earned savings is the source of the prepayments for most of us. if you decide to prepay a partial amount towards the Loan principal balance.
you will be asked to choose one of the two options.
a) Opt to "Reduce the Terms"
b) Opt to "Reduce the EMI"
If we opt to reduce the "Terms".. the EMI will remain same. This will not give you any buffer amount on your monthly expenses when the EMI is same.
But opting to reduce the EMI .. the "Terms" will remain same. this will definitely relax your monthly expenses.
However, if we look in a long term, Reducing the "Terms" will benefit more in Interest amount being paid.
For example,
If you like to do a Partial payment of 200000 after 12 Installment.
Reducing the Terms will save you 707,988 (7 lakhs)
But, Reducing the EMI will save you only 218184.93 (only around 2 lakhs)
4. Last but not least.. You can workout your own Loan amount, EMI and Terms in the below Andriod app.
(Click the below link)
Thank you!!! All the Best!!!
Please leave your comments and Feedback in the comments section.
