For an individual, buying a home is a significant milestone. If you have taken a home loan, it can take years to make the home yours. With long-term home loans, a large part of your EMI goes towards interest payments in the initial years. What if you could reduce that interest burden without increasing your EMI? The simplest way to do this is to pay one extra EMI every year. Let's break this down with a simple example:
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How Your Rs 50 Lakh Home Loan Works
Suppose Rahul, an IT professional, takes a home loan:
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Loan Amount: Rs 50,00,000
Interest Rate: 8.5% per annum
Loan Tenure: 20 years
Monthly EMI: Approximately Rs 43,391
Over the loan tenure, Rahul would pay ~Rs 54.14 lakh in interest. This means that Rahul would be paying a total amount of ~Rs 1.04 crore, more than double the amount he borrowed.
Interest Savings With One Extra EMI
Instead of paying only 12 EMIs a year, you make 13 payments. Your extra EMI reduces the outstanding loan principal, helping you save interest over the remaining tenure. Here's how your loan could look:
Particulars | Without Extra EMI | With One Extra EMI Yearly |
Monthly EMI | Rs 43,391 | Rs 43,391 |
Loan Tenure | 20 years | 19 years 7 months |
Total Interest | Rs 54.14 lakh | Rs 52.27 lakh |
Interest Saved | — | Rs 1.87 lakh |
Note: Figures are approximate and depend on when the extra payment is made and how the lender adjusts the repayment schedule.
Is One Extra EMI Worth It?
Absolutely, if your budget allows it. Paying one additional EMI a year could help you save approximately Rs 1.87 lakh in interest and close your loan around five months earlier. You don't need a huge lump sum to make a difference. Even a small, planned extra payment can reduce your debt over time.
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Before investing extra money or letting it sit idle, consider whether making an additional home loan payment could help you become debt-free sooner.
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