How to Handle Home Loan - Part Re-Payment
Part Re-Payment on Home Loans - Isn’t this something we all intend on doing right from day
one when the Home Loan is even applied? We tell ourselves, if I get a bonus from my employer,
I will use it to part repay my Home Loan. That is a Novel Idea. But, have you given a thought on
how you want to proceed with it?
Let us say your Home Loan is worth Rs. 50 lakhs and you have a surplus of Rs. 5 lakhs with you
right now and plan on using it to part repay your loan. The Bank will give you two options now
1. Reduce the Monthly EMI of your Loan & Retain the Tenure
2. Reduce the Tenure of the Loan & Retain the EMI
Which one would you choose???
The purpose of this article is to help you make that decision.
Reduce the Loan Tenure or Reduce the EMI
This is a very easy decision to Make. However, it won’t be good if I just told you which one is
good. You need reasoning - don’t you?
Positives about option 1 - Reduce the Monthly EMI
1. The Burden on your Monthly Budget will be lower
2. You will have more surplus cash every month to utilize for other expenses
Positives about option 2 - Reduce the Loan Tenure
1. The Loan will be repaid well in advance
2. The Interest you Repay the Bank will be Much Lower
Which one would you choose? I would choose "Option 2". In fact, even the bank will suggest
the same. Are you surprised???
Yes. By Default, banks will offer the option of lowering the Home Loans in India Tenure by
retaining the same EMI. This is because; any change in EMI requires a lot of Additional
From the Customer's Perspective - Below is how reducing the Tenure will be useful. Let’s say
you have taken a 20 year Tenure Home Loan for Rs. 50 Lakhs where you’re EMI works out to
approx. Rs. 50,000 per month.
EMI per Month = Rs. 50,000/-
Repayment Per Year = Rs. 6,00,000/- (6 Lakhs)
Repayment Over 20 years = Rs. 1,20,00,000/- (1.2 Crores)
Let’s say you Repay 2 or 3 lakhs now and retain your original EMI & Reduce your Loan Tenure
by 1 year, you are saving 6 lakh rupees. Would you consider this a saving or saving Rs. 2000 or
so every month in EMI???