Home Loan Tips: Buying a house is the biggest dream of all of our lives. For this we plan for years and finally resort to home loan. But do you know that in this long period of 15 to 25 years, whatever loan you take from the bank, you pay almost the same amount only in the form of interest? That means you actually get your own house at double the price. In such a situation, is there any way by which this huge interest can be reduced by lakhs of rupees? Yes, just one small change can save you lakhs of rupees and several months of time.

Let us assume that you have taken a home loan of Rs 1 crore for your dream house, the interest rate of which is 8.25 percent and the tenure is 20 years. According to this, your normal monthly EMI will be approximately Rs 85207. Now in 20 years i.e. 240 months, you will repay to the bank a total of Rs 2 crore 4 lakh 49 thousand 680. Out of this, one crore rupees is your principal amount, but the entire above Rs 1 crore 4 lakhs is only interest. This means that you are losing more money in interest than the loan amount.

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Save your interest with a magical trick

If you increase your EMI by just two thousand rupees every month. That means now your EMI increases from Rs 85 thousand 207 to Rs 87 thousand 207. This sounds like a very small change, one can imagine what would happen with Rs 2,000? But this is where the whole game changes. Because of this small extra amount, your loan will not last for the full 20 years i.e. 240 months. Rather, it will stop completely in about 227 months, i.e. in 18 years and 11 months. If your loan ends 13 months in advance, you will also save money.

How will there be big savings by increasing just Rs 2,000?

In the initial years of a home loan, a large part of your EMI is spent only on paying the interest and the principal amount decreases very slowly. For example, the interest on a loan of Rs 1 crore in the first month is Rs 68 thousand 750. In normal EMI, your principal amount reduces by only Rs 16 thousand 457. But when you pay an additional Rs 2,000, that entire amount goes directly towards reducing your outstanding principal amount. When the principal amount decreases rapidly, interest is also charged on the remaining amount from the next month and this cycle increases your savings every month.

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How big will this difference become over time?

After one year, your loan balance will be Rs 25 thousand less than the normal EMI. After five years this difference will increase to approximately Rs 1.5 lakh. After 10 years, while your outstanding in normal EMI will be Rs 69.47 lakh, with extra EMI it will be only Rs 65.76 lakh, that is, a direct benefit of Rs 3 lakh 70 thousand. Not only this, by the time 15 years comes, something amazing will happen. Your loan balance will be Rs 7 lakh less than normal and then at the beginning of the 19th year your entire loan will be closed forever.