New Delhi10 minutes ago
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If you have taken a home loan of Rs 60 lakh for 20 years, then with smart planning you can repay it in just 11 years and save interest up to Rs 30 lakh.
Sujit Bangar, Founder, Taxbuddy.com, shares these hacks to save interest on home loan, which are based on prepayment, extra EMI and annual step-up.
You can save money with 4 home loan hacks
1. Prepayment: According to Sujit Bangar, in the first 5-7 years of the loan, most of the EMI goes towards interest, the principal does not reduce much. Therefore, prepayment is most beneficial in the initial years. There will be less benefit in 12–15th year.
For example, on a loan of Rs 60 lakh with a tenure of 20 years, EMI is ₹ 53,984. Even after 120 EMIs in the first 10 years, only ₹17.4 lakh principal is repaid, the remaining ₹42.6 lakh remains outstanding. The more you prepay, the more benefit you will get.
2. Extra EMI: Pay an extra EMI every year. In this case, if you pay an extra EMI of ₹ 53,984 every year, the tenure will be reduced by 3.5 years. ₹14.85 lakh interest will also be left.
3. Annual Step-up: Increase EMI by 5% every year as income increases. This is called step-up. With this the loan will be closed in 12.4 years. There will be a saving of ₹25.72 lakh in this case.
4. Power Combo: Combine one extra EMI every year and a 5% annual step-up, it will take only 11 years and the total interest saving will be ₹30.6 lakh.
Keep these 2 things in mind while taking home loan
Ask for full cost breakup before loan sanction: Many times banks hide processing, legal, technical and valuation fees. Take the detailed sheet before signing as per RBI guidelines.
Avoid the ‘tax-saving’ trap of insurance: Relationship managers sometimes sell expensive life insurance, which is not necessary. He says this is “necessary” so that the family does not face problems upon the death of the loan defaulter. Instead of this, you can take separate cheap term insurance.
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