How to Handle Home Loan – Part Re-Payment

Part Re-Payment on Home Loans isn’t something we all intend on doing right from day one when Home Loan is applied. The Bank gives us two options:

Reduce the Monthly EMI of your Loan & Retain the Tenure

B. Reduce the Tenure of the Loan & Retain the EMI

If you choose option A.  The Burden on your Monthly Budget will be lower and you will have more surplus cash every month to utilize for other expenses.

But if you choose option B.  The Loan will be repaid well in advance and the Nri Interest Rates you repay to the Bank will be much lower.

Now which one to choose is a difficult decision? So I would suggest you to choose option B. In fact, by Default the banks will also offer the option of Lowering the Loan Tenure by retaining the same EMI. This is because; any change in EMI requires a lot of Additional Paperwork.

From the Customer’s Perspective if you see how reducing the Tenure would be useful. I will explain with an assumption that is  let’s say you have taken a 20 year Tenure Home Loan for Rs. 50 Lakhs where your EMI works out to approx. Rs. 50,000 per month then:

Your EMI per month would be 50000/- , Repayment per year would be 6 lakhs and Repayment over 20 year would be 1.2 Crore. So if 2-3 lakhs is paid on original EMI on reduced tenure of the loan, you save 6 lakhs!

Isn’t it better saving Rs. 2000 or so every month in EMI? And importantly by choosing option B it is “Affordability” because that reduced tenure is going to come only 10 or 15 years from now. But if you really want to go for option A then don’t compromise on your peace of mind to reduce your loan tenure by 1 or 2 years. Make a choice that will suit you the Best.

[Source: http://loanwalle.com/blog/how-to-handle-home-loan-part-re-payment/]