Home Loan Calculator: Slash ₹31.54 Lakh In Interest With This Simple Strategy

Home loans, especially when taken for large amounts over long durations, can result in hefty interest payments that often exceed the principal. However, with a strategic approach, you can significantly reduce this burden. Let's explore how you can save on interest payments and shorten the loan duration by using smart strategies like making an additional EMI payment annually.

How Home Loans Work
When taking a home loan , you borrow a significant sum for a long duration—often 20 to 30 years. During this period, you pay interest on the principal. This means that over time, the total interest you pay can far exceed the original loan amount. For instance, on a ₹50 lakh loan over 25 years at a 9.5% interest rate, the total repayment amount can be ₹1.31 crore, with ₹81 lakh alone being interest.

Factors Affecting Home Loan Interest Rates
Lenders base home loan interest rates on several factors like the borrower's monthly income, credit score, and repayment capacity. Even two people with similar income levels could get loans at different interest rates based on their creditworthiness and financial history.

Ways to Reduce Home Loan Interest

Reducing your interest payments doesn't have to be a complex process. Here are some practical steps

Larger Down Payment: Opting for a large down payment reduces the loan amount, leading to lower interest payments.

Prepayment: Making periodic prepayments, where you pay an extra lump sum towards the loan principal, can significantly reduce the interest burden.

Additional EMI Payments: Paying one additional EMI every year can lower the interest amount over the loan tenure, reducing the repayment period by years.

Calculating Home Loan Savings
To illustrate, let’s consider a ₹75 lakh home loan with a 9.5% interest rate and a 30-year tenure. In this scenario, the estimated EMI would be ₹67,527, with total interest amounting to ₹1.21 crore, making the total repayment close to ₹1.96 crore.

The Power of Additional EMI Payments
By adding just one extra EMI annually, you can drastically lower the total interest you pay. Here's how this works:

• New Interest Amount: When making one additional EMI payment of ₹67,527 each year, starting from the second year, the interest is reduced from ₹1.21 crore to ₹90.04 lakh.
  
• Interest Savings: This leads to a savings of approximately ₹31.53 lakh.
  
• Loan Tenure Reduction: The loan tenure drops from 30 years to around 19 years and 4 months, saving you over 5 years of payments.
  

Conclusion: Maximising Your Loan Strategy
Paying just one additional EMI each year can save you lakhs in interest and years of repayment. Combine this strategy with other approaches like prepayment and larger down payments to optimise your home loan and enjoy financial peace of mind.