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How Does Your Repayment Tenure Impact Interest Payments Towards Your Home Loan? Find Out Here

Most homebuyers rely on home loans for financial support. Property rates are soaring, because of which not many can buy a house solely with their savings. Now, before applying for a home loan, it is important to be sure of the loan’s repayment plan. There have been instances where people have struggled with the repayment of their home loans. This is because of a lack of focus on their loan repayment plan from the beginning.

To ensure that the home loan gets repaid with no complications, it is advisable to understand how a repayment tenure impacts the loan’s interest payments. Read on to learn more.

Beginning of the repayment tenure

When it comes to an EMI payment, there are two main components. One is the outstanding principal payment, which includes the repayment of the principal amount of the loan, and the other is the interest payment that is paid towards clearing the home loan’s interest. Now, when a borrower begins to repay their home loan, a major portion of the EMI payment goes towards clearing the interest component and less towards the principal amount.

As the repayment tenure progresses

As the loan tenure advances, the EMI payments you make gradually decrease towards the interest component and increase more towards the principal amount of the loan. Now, here’s what many borrowers do not realise – by choosing to go for a long repayment tenure, they actually end up paying towards the interest payments of the loan, thereby increasing the total cost of the home loan.

Most financial institutions offer a repayment tenure of 20 years to borrowers who apply for home loan plans. There are many borrowers who prefer opting for a long repayment tenure because this means that the EMI payments would include smaller amounts. However, while choosing a short repayment tenure does mean paying off higher monthly instalments, doing this can help in making significant savings on the interest payments of the loan.

So, what is the ideal move for a home loan borrower?

Ultimately, it comes down to each individual’s case. There are multiple factors to be taken into consideration before finalising the repayment tenure of a home loan. A borrower’s budget plays a big role too. It is important to consider the monthly obligations before choosing a short repayment tenure. Paying high home loan EMIs might not be possible for someone who is clearing most of their income in paying off other bills. One can also choose the option of pre-payment, which goes towards clearing the principal amount of the loan. This can effectively bring down the principal amount, thereby also reducing the interest that is to be paid on the loan.

Lastly, it is best to make use of a home loan EMI calculator before applying for one. With the help of this calculator, you can check different repayment tenures and pick one that suits your budget. It also helps in understanding whether the home loan interest rate can be afforded.

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