For an individual, buying a house is going to be one of the most significant achievements in their life. It is also something that is going to take a lot of effort, given that real estate prices can be really expensive. What most people do is apply for home loans to arrange for the required funds. While taking a home loan is a great solution, one still needs to 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 that the lender offers. The interest of the loan is added to the home loan EMIs. Now, how does the interest get affected based on the repayment tenure? Is it better to increase the EMI payments or repayment tenure in order 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:
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Increasing the EMI payments
A lot of borrowers wonder whether increasing their EMI payments is beneficial. Now, it is quite 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 in order to clear their home loans sooner. This does not just help in becoming debt-free sooner, 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 is effectively paying off the home loan in fewer instalments, 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 tenure will definitely not help in saving interest. By extending a home loan’s repayment tenure, a borrower is increasing the number of monthly instalments, and also the housing loan interest rate payments that get added with each instalment. While paying off smaller instalments would get easier with an extended tenure, make sure to 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 quite obvious that the former will help in saving interest payments towards the home loan. However, one still has to 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 make changes in the loan amount, tenure, and interest rate to arrive at a suitable EMI result.
