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Buying a home is a big financial decision, and taking a home loan helps make it possible. But did you know that choosing the right loan tenure can save you a lot of money? If you calculate home loan EMI carefully, you can reduce your interest cost and save ₹5 lakh or more over the loan period.
In this blog, we will explain how home loan EMI is calculated, how tenure affects total interest paid, and how a shorter tenure can help you save big.
What is Home Loan EMI?
Equated Monthly Installment (EMI) is the fixed amount you pay every month to repay your home loan. The EMI consists of:
- Principal Amount: The loan amount borrowed from the bank.
- Interest Amount: The extra money paid to the bank for borrowing the loan.
When you calculate home loan EMI, you will see that in the early years, a larger part of the EMI goes towards interest. As time passes, a bigger portion goes towards repaying the principal.
How to Calculate Home Loan EMI?
The formula for EMI calculation is:
EMI=P×r×(1+r)n(1+r)n−1EMI = \frac{P \times r \times (1+r)^n}{(1+r)^n-1}EMI=(1+r)n−1P×r×(1+r)n
Where:
- P = Loan Amount
- r = Monthly Interest Rate (Annual interest rate divided by 12)
- n = Loan Tenure (in months)
Instead of doing manual calculations, you can use an online EMI calculator to quickly get the EMI amount. Simply enter the loan amount, interest rate, and tenure, and it will show your EMI instantly.
How Loan Tenure Affects EMI and Interest Paid
When you calculate home loan EMI, one of the most important factors is the tenure. Here’s how different tenures impact your EMI and total interest cost:
| Loan Amount | Interest Rate | Tenure | EMI | Total Interest Paid |
| ₹30 Lakh | 8% | 20 years | ₹25,093 | ₹30.2 Lakh |
| ₹30 Lakh | 8% | 15 years | ₹28,685 | ₹21.6 Lakh |
| ₹30 Lakh | 8% | 10 years | ₹36,398 | ₹13.7 Lakh |
From the table, you can see that a shorter tenure means higher EMI but much lower total interest paid.
By choosing a 10-year tenure instead of 20 years, you save nearly ₹16.5 lakh in interest!
How a Shorter Tenure Can Save You ₹5 Lakh+
When you calculate home loan EMI, choosing a shorter tenure can help you save money in these ways:
1. Lower Interest Cost
A longer tenure means paying interest for more years. A shorter tenure reduces the interest burden, helping you save ₹5 lakh or more.
2. Faster Loan Repayment
With a shorter tenure, you clear the loan faster and become debt-free sooner.
3. Higher Savings in the Long Run
Though the EMI is higher for a shorter tenure, the total repayment amount is much lower, helping you save money for other financial goals.
Ways to Afford a Shorter Tenure and Lower EMI Burden
If a shorter tenure increases the EMI amount beyond your budget, here are some smart ways to manage it:
1. Increase Your Down Payment
The more you pay upfront, the lower your loan amount and EMI. Try to make a higher down payment to reduce your loan burden.
2. Improve Your Credit Score
A higher credit score (750+) can help you get a lower interest rate, reducing your EMI and total loan cost.
3. Choose a Home Loan with Lower Interest Rates
Compare different lenders and choose the one offering the lowest interest rate. Even a small difference in interest rate can help you save a lot.
4. Opt for Higher EMIs Based on Future Income
If your income is expected to increase in the future, opt for a shorter tenure and higher EMI now. You can manage the higher EMI as your salary grows.
5. Prepay Your Loan Whenever Possible
Use any extra income (bonuses, tax refunds, etc.) to make part-prepayments on your loan. This reduces your principal and overall interest paid.
Common Mistakes to Avoid When Choosing Loan Tenure
- Choosing a Longer Tenure Just for Lower EMI: Lower EMI may seem attractive, but you end up paying more in interest over time.
- Not Checking the Total Interest Paid: Always compare the total repayment amount before finalizing the tenure.
- Ignoring Future Income Growth: If your income will increase, consider choosing a shorter tenure to save on interest.
Conclusion
When you calculate home loan EMI, choosing the right tenure is crucial for saving money. While longer tenures offer lower EMIs, they increase the total interest paid. A shorter tenure may require higher EMIs but can help you save ₹5 lakh or more in interest costs.
By making smart financial decisions, such as increasing your down payment, improving your credit score, and prepaying whenever possible, you can manage a shorter tenure without financial stress. Use an online EMI calculator to compare different tenures and select the one that best suits your budget and savings goal.