Excellent tips from finance expert: How to quickly repay the housing loan
Posted on: 28/Apr/2016 2:57:46 PM
Most public resort to taking housing loans as it is impossible to arrange Lakhs to be paid in one lump sum and also because of the fact loans are made available by the banks and other financial institutions to be paid back as EMIs.
Statistics reveal that though most of them take loans to be paid back in 15 to 20 years, most of them are repaid within 8 years on the average.
It is obvious that if the loan is repaid over the agreed period, the interest would be high.
Here is an example:
Loan: Rs. 25 Lakhs
Payback period: 30 years (360 months)
Interest rate: 10 percent
Monthly Instalment: Rs. 21939/-
You can note here that the loan amount is only Rs. 25 Lakhs. However, the interest to paid works out to Rs. 54 Lakhs.
Instead of paying this huge amount of interest, some procedures can be followed to save an appreciable amount of interest.
Paying a higher amount than the agreed EMI: As per the above example, instead of paying Rs. 21939 as per the EMI, if an additional amount of Rs. 3061 is added and a monthly payment of Rs. 25500/- is made, the repayment of housing loan will get completed in 216 months instead of 360 months as per the loan plan. The interest paid reduces Rs. 29 Lakhs. Thus a saving of Rs. 25 lakhs is effected towards interest payment.
Increasing the EMI amount with every passing year: Pay the 1st year repayment as per the agreed EMI. Increase the EMI value from the next year, by a particular amount. Follow this for every subsequent year.For example, if you go on adding a monthly extra of Rs. 5000/- to the EMI every subsequent year, the housing loan will be paid back in 103 months instead of 360 months as per plan. The total interest paid in this procedure is only Rs. 15 Lakhs. An amount of Rs. 38.5 Lakhs is saved from the interest payment.
Making an additional payment every year: After paying the 1st year as per the agreement, making an additional payment every subsequent year will help substantial saving in the interest paid. For example, if an additional payment of Rs. 1 Lakh is paid every year from the 2nd year onwards, the housing loan will get paid back in 159 months. The interest paid on the housing loan will work out to be only Rs. 19.21 Lakhs.
Follow whichever plan is more affordable for you and repay your housing loan in quick time.
