Tricks to reduce Home Loan Tenure and Save Lacs - Home Loan Blog - Tata Capital

Simple Trick to Reduce Your Home Loan Tenure & Save Lacs!

Mar 08, 2017

Reducing your loan tenor is an attractive option. But bigger attraction is how to save a few additional lacs. Isn't it?

This article tells you how to manage your EMIs to do exactly that. But first, get this one fact clear - the more time you spend on repaying the loan, the more interest you will have to pay. So it makes financial sense to reduce the loan tenure whenever possible.

Now let's use some basic mathematics to prove it. Don't worry, the calculations are simple enough even if you are not very strong in maths:

Suppose few years back, you purchased a house. For that you took a home loan of Rs 50 lacs (@ 11% rate of interest). The original tenure of loan was 20 years and you were be paying an EMI of Rs 51,610 for it.

Now banks regularly change interest rates depending on the current RBI-governed interest rate scenario in the country. So suppose your bank decides to cut rates to 10.75%. What this means is that your EMI will be reduced to Rs 50,671. But you have another option. If you can continue to pay the original EMI (Rs 51,610), then you can reduce the tenure of your loan. This will mean a reduction of tenure by one year and savings of Rs 6.71 lacs as interest cost.

Doesn't that sound like a good option? And, that too by simply continuing to pay Rs 938 extra every month (Rs 51,610 - Rs 50,671).

As you can see, there is no complicated trick here. Just continue paying slightly higher EMI and you will be done. So think about it and if you can manage with slightly higher EMI every month, do discuss this with your lender. They will be happy to get higher EMIs from you in any case.