If there’s one thing you’ve constantly heard as an Indian, it’s the advice you get to buy a home as soon as possible. This is because owning real estate is one of the most preferred assets you can have in your financial portfolio.
This has put a lot of pressure on many Indians. However, not everyone can afford to buy a house, especially with the increase in housing prices. Latest statistics from the National Housing Bank show that residential real estate prices have increased up to 22% in 33 cities.
Now, there are several factors you need to consider before you apply for a home loan, like your repayments for the foreseeable future. Not only will this help you make an informed decision, but it will also help you plan your budget efficiently. Applying for a home loan is a long-term commitment, hence it is pivotal that you plan ahead.
Luckily for you, we have curated a guide about home loan repayments and everything you need to know about it.
To get started, let’s assume you have taken a home loan of Rs.30 lakh in March 2019. This is for a period of 20 years with an interest of 8.25% p.a. and a 1% processing fee. Your monthly EMI will be calculated at an annualized rate, which amounts up to Rs.25,562.
Check out the loan amortisation table below for a detailed look into your home loan.
| Year | Principal amount paid (Rs.) | Interest paid (Rs.) | Outstanding loan balance (Rs.) |
| 2019 | 50,925 | 2,04,694 | 29,49,075 |
| 2020 | 65,899 | 2,40,845 | 28,83,175 |
| 2021 | 71,546 | 2,35,197 | 28,11,628 |
| 2022 | 77,677 | 2,29,067 | 27,33,950 |
| 2023 | 84,334 | 2,22,409 | 26,49,616 |
| 2024 | 91,561 | 2,15,183 | 25,58,054 |
| 2025 | 99,407 | 2,07,337 | 24,58,647 |
| 2026 | 1,07,927 | 1,98,817 | 23,50,722 |
| 2027 | 1,17,173 | 1,89,571 | 22,33,548 |
| 2028 | 1,27,213 | 1,79,529 | 21,06,333 |
| 2029 | 1,38,116 | 1,68,628 | 19,68,217 |
| 2030 | 1,49,951 | 1,56,792 | 18,18,265 |
| 2031 | 1,62,802 | 1,43,942 | 16,55,464 |
| 2031 | 1,76,753 | 1,29,991 | 14,78,712 |
| 2033 | 1,91,899 | 1,14,845 | 12,86,813 |
| 2034 | 2,08,344 | 98,400 | 10,78,471 |
| 2035 | 2,26,195 | 80,548 | 8,52,275 |
| 2036 | 2,45,580 | 61,164 | 6,06,696 |
| 2037 | 2,66,622 | 40,121 | 3,40,072 |
| 2038 | 2,89,470 | 17,274 | 50,601 |
| 2039 | 50,601 | 523 | 0 |
* Do note that these calculations do not factor in the increase in interest rates or inflation.
As you can see, the interest you pay is high for the first few years and then decreases towards the end of your tenure. Repayments towards your principal amount, on the other hand, starts low at the beginning of your tenure and picks up rapidly towards the end.
Different Ways You Can Clear Your Home Loan:
Managing a home loan can be a financial burden, especially if the amount you have borrowed is relatively higher. Now, there are some repayment strategies you can try to reduce the interest amount and clear your loan faster. Let’s take a look at them below:
Pay Higher EMIs:
You can choose to pay higher EMIs, which will reduce the interest amount significantly. Most of your payments will be directed to your principal amount and you’ll find it easier to close the loan faster.
Opt for Partial Prepayment:
If you’ve suddenly come into money, you can consider opting for a partial prepayment. Alternatively, you can also dip into your savings. Depending on your loan provider, you may be charged prepayment fees. However, most lenders currently do not charge a fee if you use your own funds to prepay the loan. Clearing a substantial amount will lower the principal amount as well as the interest levied on your loan.
Choose a Shorter Tenure:
If you’re eligible for a shorter tenure and can afford it, you can always pick this option. However, it’s important to consider your monthly income and other aspects before you settle for a shorter tenure. Your monthly payments may be extremely high and you must ensure it doesn’t affect your day-to-day to life and expenses. However, a shorter tenure means you’ll pay lesser interest.
Also Read: Home Loan Interest Rates in India 2019
How to Plan Your Home Loan Repayments:
There’s a reason your home loan EMI is restricted to a certain amount. Your lender takes into account several factors—your monthly income, your employment, your other sources of income, your growth prospects, and more.
More often that not, your EMI amounts to 30% to 40% of your income. This is to ensure you have enough financial breathing space to take care of your daily expenses, investments, and any other unexpected emergencies.
Here’s an example of how lenders could calculate your repayment capacity. First, they’ll set aside 20% to 25% of your income for your monthly expenditure. Another 20% to 25% will be considered for emergencies or any investments you have. Then, there’s another 10% that’s considered for other loan or credit repayments you have. The odd 40% to 50% you’re left with will go towards your home loan repayment, thus determining your eligibility.
To ensure you don’t experience too much financial strain during this period, it’s advised to plan your repayments carefully.
You can start by planning your budget, taking into account your monthly as well as yearly expenses. This should include your rent, food, and other basic necessary expenses. Then, set aside a certain amount for your savings and any existing debt you have to clear. You should also have an emergency fund, in case of medical issues or as backup to pay your EMIs in case you face issues with your employment.
What you’re left with should ideally go towards your home loan EMIs. Have a word with your lender and make sure this amount doesn’t exceed 40% of your monthly income.
Taking a home loan is a huge commitment and responsibility. Make sure you do your research, check the options available in the market, and apply for one with the best features. You should also share a good relationship with your lender, which can make the repayment process much easier. At the end of the day, you should be able to control your home loan EMIs without any struggle.
