Home loan tenure doubt


#1

Hi Guys,
My home loan is sanctioned and all paper work done. It is for 30 years tenure. But can I change it to 20 years now?

Second question: Bank guy is telling me that it’s still ok let it be 30 years, but you finish paying your loan in 20 years only you won’t be at loss. It would make no difference. Is it really true?

Any help is highly appreciated!
Thanks.


#2

Hi Gupta,

A lot will depend on the terms and conditions of your Home Loan. The EMI will be less if you opt for a longer tenure but you will pay more interest. If you opt for a lower tenure, the interest pay-out will be less. So, you pay more interest if you opt for a 30 year loan when compared to a 20 year loan. Another point is that you can’t save on interest for a longer tenure loan if you don’t finish paying your loan early. In any case, repaying your loan earlier during the tenure will save you more in interest.
Here’s an example. Assume you have Rs. 50 lakhs Home Loan with 10.5% interest rate and 20 year tenure. Your interest payment will be Rs. 3 lakhs a year while principal repayment will be close to Rs. 50,000. If you prepay Rs. 2 lakhs of your principal when you are just 2 years into your loan, you will save Rs. 8.8 lakhs of interest. If you do it after repaying your loan for 15 years, you will save only Rs. 1.2 lakhs.

We suggest that you check the terms and conditions of your Home Loan to ensure you are free to repay your Home Loan at any time. Calculate the total interest pay-out for a 30 year loan and compare it with a 20 year loan, assuming that you will pay off your 30 year loan in 20 years. This will tell you what you have to do.

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Cheers,
BB Expert