- Have you chosen a very long home loan tenure? You could end up paying much more!
- However, you can reduce the tenure and save - Read this post to know how you can do so
Tenure plays an important role in a home loan that runs for as long as 30 years. You may not take the loan for 30 years, but given the home loan quantum that you will require, you could still take the loan for 20 years. Having a decently long home loan tenure keeps the EMI reasonable so that you can pay the same on time. A timely repayment track will ensure a good credit score, boosting your chances of getting loans without any hassle in the future. But the product home loan is such that you can’t take your eyes off from both the current situation and the situation you will witness in the future. You need to keep the present EMI affordable while also ensuring a reduction in your interest obligations over time. A longer home loan tenure will keep EMIs lower and interest obligations higher compared to when the loan is taken for a shorter tenure. In a home loan, the difference in interest repayments can be massive with the difference in tenure. So, you need to be particular about the tenure. However, if you didn’t choose it carefully by the time you took the loan, you can change the home loan tenure later to cut down the interest payment. Let’s see how you can change the tenure later.
Process of Changing the Home Loan Tenure
The tenure can be changed voluntarily anytime during the course of the loan. You can visit the branch of the lender and give a request for the same. The concerned official will go through your loan statement and latest income statements before allowing you to change the tenure. Now that change can be either an increase or decrease in the home loan tenure. But if you want to keep the interest down, you need to reduce the tenure from what was agreed earlier. The EMI could rise with this new loan arrangement, so your income should be high enough to accommodate the increased EMI amount. An example below will help you understand things better.
Example – You have been paying a home loan of INR 50 lakh for the last 4 years at an interest rate of 8.35% per annum. The loan is for 20 years. In this case, the EMI and interest would amount to INR 42,918 and INR 53,00,236, respectively. Now, if you want to change the overall tenure to 18 years, you will need to pay the loan for another 14 years. How will this change in the home loan tenure change your repayment? Let’s check out the same below.
|Original Loan Amount||INR 50,00,000|
|Interest Paid Till 4 Years @8.35%||INR 15,98,847|
|Outstanding Loan Balance at the End of 4 Years||INR 45,38,799|
|EMI Payable @ 8.35% for the Remaining 14 Years (Overall Tenure Cut Short to 18 Years)||INR 45,901|
|Interest Payable @ 8.35% for the Remaining 14 Years (Overall Tenure Cut Short to 18 Years)||INR 31,72,503|
|Interest Paid Over 4 Years + Interest to be Paid Over the Next 14 Years||INR 47,71,350|
So, this loan arrangement saves you interest payments worth INR 5,28,886 (53,00,236-47,71,350). The EMI rises by INR 2,983. In four years, your income will most likely be more than enough to accommodate such an increase in the monthly obligation.
Change the Loan Tenure When Doing a Part Payment
Lenders allow prepayment both in full and parts during the course of the home loan tenure. Interestingly, they don’t charge for the same, provided the home loan is given on a floating interest rate. Prepayment, in simple terms, means the payment of the outstanding loan balance either in full or parts. With a full prepayment, the home loan comes to an end. But many may fail to arrange such a sum. Or if they do arrange, they might not like paying all. The reason being they would want maximum surplus money by the time they retire. But doing a part payment can still be feasible and acceptable to most. So when you part pay, you are allowed to change the home loan tenure. How much benefit will you have on changing the tenure? Let’s find out sticking to the above example of an INR 50 lakh loan at 8.35% interest rate for 20 years. As said earlier, the EMI and interest payments will amount to INR 42,918 and INR 53,00,236, respectively. If you make a part payment of say INR 5 lakh by the time the loan completes 8 years of its journey and deal with the lender to take forward the remaining loan balance for 9 years as opposed to 12 years, how will it reflect on your financials? Let’s consider the table below to know the same.
|Repayment Aspects||Repayment Scenario with a Changed Tenure Post Part Payment of INR 5 Lakh||Repayment Scenario with no Change in Tenure Post Part Payment of INR 5 Lakh|
|EMI Payable @ 8.35%||INR 42,918||INR 42,918|
|Interest Paid Till 8 Years||INR 30,15,552||INR 30,15,552|
|Outstanding Loan Balance at the End of 8 Years||INR 38,95,458||INR 38,95,458|
|Part Payment at the End of 8 Years||INR 5,00,000||INR 5,00,000|
|EMI Payable @ 8.35% on the Outstanding Balance of INR 33,95,458 for 9 Years (Overall Tenure Cut Short to 17 Years)||INR 44,823||N.A.|
|EMI Payable @ 8.35% on the Outstanding Balance of INR 33,95,458 for 12 Years||N.A.||INR 37,409|
|Interest Payable @ 8.35% on the Outstanding Balance of INR 33,95,458 for 9 Years (Overall Tenure Cut Short to 17 Years)||INR 14,45,420||N.A.|
|Interest Payable @ 8.35% on the Outstanding Balance of INR 33,95,458 for 12 Years||N.A.||INR 19,91,433|
|Interest Paid Over 8 Years + Interest to be Paid Over the Next 9 Years||INR 44,60,972||N.A.|
|Interest Paid Over 8 Years + Interest to be Paid Over the Next 12 Years||N.A.||INR 50,06,985|
|Savings in Terms of Interest Outgo||INR 8,39,264 (53,00,236-44,60,972||INR 2,93,251 (53,00,236-50,06,985)|
You could clearly see how changing the tenure post part payment saves more when continuing for the time as agreed at the time of loan application. Yes, the EMI rises by INR 1,905 with a shorter tenure post part payment as opposed to a decrease in the EMI by INR 5,509 when you don’t tinker with the home loan tenure after making the part payment. So, the choice is yours. Do see your income situation at the time of part payment before taking a call on whether to go with a curtailed tenure or not.
Can I Change the Home Loan Tenure When Doing a Balance Transfer?
Yes, it’s possible! The new lender where you want to switch your outstanding loan balance allows you to change the home loan tenure besides benefitting from the obvious i.e. lower interest rate. Let’s stick to the same example showing the loan amount of INR 50 lakh at an interest rate of 8.35% for 20 years to understand it. The EMI and interest payable on this amount to INR 42,918 and INR 53,00,236, respectively, as told above. After paying the loan for 3 years, a new lender has approached you for a balance transfer facility at 7.75% per annum. Now you have two choices – either to go for the remaining 17 years or cut short the home loan tenure. In case you wish to take the balance transfer facility for 15 years from here on, how much more can you save from the same? The table below will show you the savings, so take a look!
|Repayment Aspects||Repayment Scenario with a Reduced Tenure on a Balance Transfer||Repayment Scenario with No Change in Tenure on a Balance Transfer|
|Original Loan Amount||INR 50,00,000||INR 50,00,000|
|EMI Payable @ 8.35%||INR 42,918||INR 42,918|
|Interest Payable @ 8.35% for 20 Years||INR 53,00,236||INR 53,00,236|
|Interest Paid Till 3 Years||INR 12,13,900||INR 12,13,900|
|Outstanding Loan Balance at the End of 3 Years||INR 46,68,864||INR 46,68,864|
|EMI Payable @7.75% on a Balance Transfer for the Next 15 Years (Overall Tenure Cut Short to 18 Years)||INR 43,947||N.A.|
|EMI Payable @7.75% on a Balance Transfer for the Next 17 Years||N.A.||INR 41,246|
|Interest Payable @7.75% on a Balance Transfer for the Next 15 Years (Overall Tenure Cut Short to 18 Years)||INR 32,41,575||N.A.|
|Interest Payable @7.75% on a Balance Transfer for the Next 17 Years||N.A.||INR 37,45,268|
|Interest Paid Till 3 Years @ 8.35% + Interest Payable @ 7.75% for the Next 15 years (Overall Tenure Cut Short to 18 Years)||INR 44,55,475||N.A.|
|Interest Paid Till 3 Years @ 8.35% + Interest Payable @ 7.75% for the Next 17 years||N.A.||INR 49,59,168|
|Savings in Terms of Interest Outgo||INR 8,44,761 (53,00,236-44,55,475)||INR 3,41,068 (53,00,236-49,59,168)|
Around INR 8 lakh of savings are in store for you with a balance transfer when you cut short the overall loan tenure to 18 years. On the other hand, the savings remain handsome but less when you don’t tinker your home loan tenure when going for a balance transfer. The EMI rises on a curtailed tenure, but by just INR 1,029 (43,947-42,918). Whereas, it decreases by INR 1,672 when you don’t change the tenure on a balance transfer. It’s up to you to decide which path you should choose.