For an individual, buying a house is going to be one of the most significant achievements in their life. It will also take a lot of effort, given that real estate prices can be high. What most people do is apply for home loans to arrange for the required funds. While a home loan is a great solution, one must thoroughly plan the loan’s repayment. This is important to avoid any financial complications in the future.
Now, while applying for a home loan, a borrower needs to focus on the interest rate the lender offers. The interest of the loan is added to the home loan EMIs. Now, how does the claim get affected based on the repayment tenure? Is it better to increase the EMI payments or repayment tenure to save on the total interest payment towards the home loan? To learn the answer to all these questions, go through the following to understand how EMIs are affected with the following actions:
Increasing the EMI payments
A lot of borrowers wonder whether increasing their EMI payments is beneficial. It is common for employees to receive bonuses or appraisals at work for excelling in their performances. Those who are home loan borrowers can choose to increase their EMI payments to clear their home loans sooner. This does not just help in becoming debt-free first; it is also very effective in reducing the total interest payments towards the home loan. This is because the interest is added with each home loan EMI payment. By increasing the EMI payments, the borrower effectively pays off the home loan in fewer installments, thus cutting down the total interest paid. So, increasing the EMI payments of a home loan is an effective way of saving interest.
Extending the repayment tenure
There have been cases where borrowers have extended their repayment tenure. This could be because they are struggling to repay the home loan or are simply looking for a more flexible repayment tenure. Whatever the case, extending the term will not help save interest. A borrower increases the monthly installments by developing a home loan’s repayment tenure, and the housing loan interest rate payments are added with each installment. While paying off smaller installments would get easier with an extended term, keep in mind that the total interest paid would increase.
By looking at both the scenarios of increasing EMI payments and extending the tenure, it is obvious that the former will help save interest payments on the home loan. However, one must keep their budget in mind to find the right balance. This is where a home loan EMI calculator will be useful. This home loan calculator displays the EMI results, so one can change the loan amount, tenure, and interest rate to arrive at a suitable EMI result.