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Change in interest rate: Impact on floating rate home loan, EMI and tenure

The interest rates have been very volatile in the last few years. A couple of years back, the rates were going down. And they have been moving up for some years now.

What effect does a rate change have on a floating rate home loan (or mortgage)? Does it change the amount of the EMI? Does it alter the tenure of the repayment period? Let’s explore.

With inflation rising to over 12%, the interest rates on deposits and loans have also been steadily climbing. The rates were increased in July, and were increased again in August.

This has meant that the interest rates for floating rate home loans have also increased significantly over the past few months.

Since many of us have taken home mortgage loans with a floating rate, let’s analyze how this increase effects the equated monthly installment (EMI) and the repayment period / schedule.

(To know about the basics of home loan, please read “An introduction to home loans and factors to consider“)

The first step is to understand the composition of the Equated Monthly Installment (EMI) that we pay every month.

 

Understanding the composition of Equated Monthly Installment (EMI)

Each EMI that we pay consists of two components: Interest on the outstanding amount of the loan taken, and repayment of principal.

Login Required To find out the EMI for your home loan at various rates of interest, and to find the exact breakup of your EMIs over the years, please download the free “Home Loan Amortization / Repayment Schedule”

With each EMI payment, we pay back some of the loan in the form of repayment of principal. As a result, with each EMI payment, the interest component in the subsequent EMI goes down a little, and the principal repayment component increases a little.

At the beginning of the repayment schedule (that is, during the initial years of the home loan repayment), the interest component is much higher than the principal repayment component in an EMI.

Over years, as we repay some principal with each EMI, the interest component decreases, and the principal repayment component increases.

Towards the end of the home loan repayment schedule (that is, during the last few years of the home loan repayment), the principal repayment component is far higher than the interest component in the EMI.

Login Required To find out the EMI for your home loan at various rates of interest, and to find the exact breakup of your EMIs over the years, please download the free “Home Loan Amortization / Repayment Schedule”

 

What happens when interest rate increases?

Simply speaking, when interest rate increases, you need to pay a higher amount as interest for the amount that you borrow.

This means one of the two things:

  • Your EMI amount increases to accommodate the increased interest payment, so that the tenure of your housing loan stays the same, or
  • The EMI remains the same and the tenure of the home loan increases, so that you can pay the increased interest through more EMI payments.

EMI increases, Tenure remains the same

This is quite intuitive – since you have to pay more interest, you pay more every month. This means that your EMI amount increases, but the overall period or duration of the loan repayment remains the same.

Let’s take an example. Say you take a Rs. 20 Lakh loan for 20 years at an interest rate of 10.5% per year. Your EMI would be Rs. 19,968 per month.

Now, if this rate increases to 11% per annum, the EMI would be Rs. 20,644 per month.

Login Required To find out the EMI for your home loan at various rates of interest, and to find the exact breakup of your EMIs over the years, please download the free “Home Loan Amortization / Repayment Schedule”

Tenure increases, EMI remains the same

In this case, the EMI remains the same. But since you have to pay more interest now, the number of EMIs to be paid increases. That is, the years for which you have to repay the loan increases.

Continuing the same example of a Rs. 20 Lakh, 20 year loan, an increase of 0.5% increases the tenure of the loan by upto 24 months. Thus, you would end up paying the EMIs for 22 years instead of 20 years.

Remember – Since the tenure of the home loan increases, you are repaying the loan over a longer term. Therefore, the proportion of the interest component in the EMI increases significantly in the initial years.

 

What is better – EMI increase or Tenure increase?

Both have their pros and cons.

EMI increases, Tenure remains the same

The biggest disadvantage is that not everyone can afford an increased EMI.

Most of us stretch ourselves when we buy a home – we try to buy the best possible home as it is a once-in-a-lifetime purchase for most of us. This means that we end up taking a loan that has an EMI that we can just about afford. Any increase in the EMI might not be sustainable by our monthly budgets!

And even if you are willing to pay a higher EMI, the bank may refuse to do so in cases where the increased EMI amount becomes more than a certain percentage of your total monthly income.

But the advantage is that you have to pay for lesser number of years.

Tenure increases, EMI remains the same

The disadvantage here is that you have to keep repaying the home loan for a longer period.

But the advantage is that these extra EMI payments towards the end of the loan would not pinch at all. This is a positive side-effect of inflation – it reduces the value of the Rupee each year, and by the time you reach the fag end of your repayment schedule, the EMI would form a negligible fraction of your monthly income.

(To read a detailed analysis of this positive effect of inflation, please go to “Settle early in life – buy a home when young”)

For example, let’s take the EMI of Rs. 20,644 that we have in our example. In the 21st year, it would be equivalent to today’s Rs. 1,911 if the rate of inflation is 12%, and would be equivalent to today’s Rs. 6,073 if the rate of inflation is 6%.

You might read large headlines in newspapers like “Home loan takers to pay Rs. 5 Lakhs more as interest” when interest rates increase, but remember, you would be paying this extra amount years down the line, when the value of any extra money paid would be a actually very small in real terms due to the effect of inflation.

 

What should you choose?

Most banks have their own rule about choosing one of these. In that case, you would have to go by the bank’s policy.

But there are some banks (like State bank of India – SBI) that give the choice to the customer.

In such a case, choose to keep the EMIs constant and extend the tenure. As explained earlier, although you would pay more as interest over the tenure of the loan, you would end up saving in real terms.

The only problem would be for people nearing retirement – if you are nearing retirement, the bank would not allow you to increase the duration of your repayment period.

For everyone else, keeping the EMIs constant and extending the tenure should be the best option.

Do you have a floating rate home loan? What have you done? Have you increased your EMI, or extended the tenure? Please let me know through comments below.

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Comments

  1. Anonymous says:

    To be frank, we guys really leave it to the bank or friend to tell us what should we do?

    But its really good to think the benefits of Future value. I like the para which says – You might read large headlines in newspapers like “Home loan takers to pay Rs. 5 Lakhs more as interest” On reading such a news we would all of a sudden take the calculators out and calculate the additional burden of this interest as if we have to pay the interest now.

    I have a floating interest and seriously never had time to go back to bank and negotiate to maintain the same tenure. EMI is still fixed amount

  2. Hi raagvamd ,

    Thnaks for the nice posts and advice.
    I have taken homeloan 2 months back and have been paying the EMI.Now if the interest rate is reduced by say 1% by the bank today then when i will be getting the EMI on the reduced rate . Does it depend on the bank or I need to talk to them ?
    thnks,
    Prasanta

  3. Shraman Jha says:

    Dear Sir,

    Read your excellent article. I have very recently opted for EMI increase, but keeping tenure constant at 20 years. My arguments are as follows:

    a) I am 38 years old. Pyschologically, I would like to have paid FULLY for my home before retirement at 58 or 60.

    b) Today I have the capaity to pay a few thousand more in EMI – given an uncertain economicenvironment, I may or may not be able to do so in my 50′s.

    c) By keeping tenure fixed, when the Interest rate is high, I pay a higher EMI ( and therefore a higher amount of the Principle too). But when Interest rates fall, my EMI falls too ( so I pay a smaller amount of Principal – and therefore enjoy the benefit of the lower rate of interest). Secondly, as my EMI falls in a low interest period, I have more cash in hand for any alternate, better yielding investments.

    Keeoing these possible High and Low interest situations in hand, ihave taken my decision.

    Please comment if this was sensible.

  4. Anonymous says:

    Dear Shraman,

    I agree with you – age plays a very important role in this decision. You would definitely not want the EMIs to continue till the time of your retirement.

    And in any case, our decisions would depend on our personal situations.

    Having said that, here are a few points to consider:

    1. Interest rates go through a cycle. We saw the rates dropping to around 7% (for home loans) around 2004-05, and then, they have been rising.

    But just like the very low rates, even the high rates would not be permanent.

    Thus, when the rates would go down in the future, the tenure would reduce again.

    2. If you can afford extra payment, a better idea would be to prepay some of your home loan. (Most banks offer free part-prepayment of housing loan)

    This entire amount would go towards repayment of the principal. Therefore, you would be paying interest on a lower outstanding amount.

    Also, this would mean that the tenure of the loan would reduce.

    3. When the EMI increases due to rise in interest rates, most of the increased payment goes towards payment of the increased interest. (Not surprising, coz the increase in EMI is due to increase in interest rate!)

    Let me use the same example that I used in the article.

    For a Rs. 20 Lakh home loan for 20 years at 10.5%, the EMI is Rs. 19,968. For the first EMI, the interest is Rs. 17,500 and the principal is Rs. 2,468.

    If the interest rate increases to 11%, the EMI would be Rs. 20,644 for a Rs. 20 Lakh home loan for 20 years. For the first EMI, the interest is Rs. 18,333 and the principal is Rs. 2,310.

    Thus, the interest component increases by Rs. 833, and – hold your breath – the principal component decreases by Rs. 158!

    (To find the exact changes to your EMI, please download this free “Home Loan Amortization / Repayment Schedule“)

    Of course, even when you opt for increasing the tenure, the interest component of the EMI increases (as you would now repay the loan over a longer duration).

    But this example is just to remove the misconception that you pay a higher principal when EMI increases.

  5. Shraman Jha says:

    Thank you – your comments are indeed eye opening.

    A query on your point (1) : Why should Tenure reduce, if the interest falls in future ( as I have opted that EMI gets adjusted, but the Tenure remains constant) . Similarly, if I prepay apart of the loan, keeping Tenure constant, won’t the EMI come down? Why would the Tenure get affected, under the options that I have exercised?

  6. Anonymous says:

    Hi Shraman,

    Sorry for the confusion – I was still arguing for increase in tenure!

    In your case:

    1. If interest rate falls, your EMI would fall.
    2. If you prepay, your EMI would go down.

    hope that clarifies!

  7. Thanks Raagvamd for the input.I will check with the bank and hope it’s for existing customers as well.
    thnks,
    Prasanta

  8. Anonymous says:

    Dear Prasanta,

    Thanks for the good words…

    When banks announce a cut in loan rates, they also declare an effective date for it. So, your EMI will reduce depending on that.

    The bank would intimate you about it, but there is no harm in proactively approaching the bank.

    By the way, please check if the rates have been reduced for existing home loan customers – many times, banks reduce rates only for new customers.

  9. Anonymous says:

    Hi Ambarish,

    Ok, now I understand your question :-)

    Usually, banks either increase the tenure or the EMI amount – increasing EMI with a lag is a bit strange.

    And you are right – there is no fun in paying just the interest, and increasing the outstanding principal! This doesn’t sound very fair on you.

    You can probably talk to the bank, and tell them that you are willing to pay the increased EMI immediately. I don’t see a reason why the bank would disagree.

    One more thing: Most banks ask for EMI cheques in advance. Have you given such cheques till Dec 2008? That might be one reason why the bank is asking for higher EMI only from Jan 2009.

  10. Thanks for the reply, but you misunderstood my question.

    I perfectly understand the dynamics of interest and principal component in the EMI. Let me rephrase my question:

    Recently, my bank sent me a letter informing abt increase in rate of interest wef Aug 1, 2008, and asked me to deposit the enhanced EMI chq from Jan 2009.

    The trouble is: after the increase, the interest part is greater than the EMI, so the outstanding principal goes on climbing for the 4 months (spet to dec).

    I believe they should have asked for enhanced EMI cheques from Aug itself.

    Thought?

  11. Hello – My bank increased the ROI, and sent a letter asking for higher EMI from 4months later. In these 4 months, the interest component is higher than the EMI amount – thus, my outstanding principal goes on increasing.

    Is this a fair practice?

  12. Anonymous says:

    Hi,

    I think there is some misunderstanding.

    During the initial years of a home loan, the interest component is greater than the principal component. Over time, interest component keeps decreasing, and ultimately becomes less than the principal component.

    So, it is very natural that the interest component is higher than the principal component.

    But this doesn’t mean that there is no principal repayment and that the outstanding principal is inc reasing – it just means that the outstanding principal is reducing at a slower pace!

    After the rate hike, the share of the interest component in the EMI would increase even more – this is to accommodate the higher interest rate.

  13. Anonymous says:

    I have taken home (floating) loan almost a year back.
    Mostly banks reduce interest rates for new customers (when overall indications from repo /reverse repo rate and othr RBI indicator point to reduced intereset rates)
    Q: is when does really the EMI go down for existing customers?
    Thanks
    –Abhay Werty–

  14. Dear Raag,
    Please let me know your thoughts on the situation mentioned below:

    1. Home loan taken (Amount = Rs. 31 Lakhs) at 11.00% p.a. (Floating rate of interest)

    2. After subsequent paybacks, the balance principal falls to say Rs. 28 lakhs.

    3. As per the then interest rate slab of bank, Loan amount above 30 lakhs is charged at 11.00% while those between 20 lakhs and 30 lakhs are charged at 9.5% p.a.

    4. Will this loan now be charged at 9.5% p.a. ?

    Regards,
    Abhishek

  15. Anonymous says:

    Hi Abhishek,

    Although we would love otherwise, banks consider the original loan amout for calculating the rate of interest.

    Thus, in your case, bank would charge the interest rate applicable for loans over Rs. 30 Lakhs – which is 11% in your example.

  16. Hi Abhay,

    This is an interesting question, with no concrete answer.

    The floating rate that a bank charges its existing customers depends on the Prime Lending Rate (PLR) of the bank.

    This PLR should ideally fluctuate in line with the changes in interest rates (repo / reverse repo etc as you pointed out), but there is no defined rule linking the banks PLR to the market rates (like MIBOR).

    Therefore, it primarily depends on the bank when to lower this rate, and thus, to lower the floating rate of the home loans. And the EMI actually goes down only when the bank lowers this rate.

    Note: instead of lowering the PLR, many banks issue new loans at a discount to the PLR, say PLR – 1%. In such cases, existing customers keep paying the higher rate, and new customers enjoy the benefit of a lower rate!

  17. I have re-calculated the NEw EMI based on the Outstanding Balanc and the Effective new Int Rate as well as maintaning the Tenure at 60 months…

    This gives me an increased EMI, however I want to actually pay a small amount alongwith the Old EMI to mainatain the Tenure..

    I usually do this till i Get “0″ in the last cell..But I need some mathematical help to be able to get a scientific way of deriving rather than doing it manually …

    I know the formulas to get the EMi using Excel’s inbuilt function PMT?

    So can you please help me on the same as a Financial Guru, Im sure if a client where to visit a bank the bank would give out this amount..

    CAn yu please guide me for the same?

  18. Anonymous says:

    Hi Chetan,

    There are many conventions used in case of interest rates and yields – especially in the field of bond valuation.

    Examples – 30/360, 30/365, actual/360, etc.

    I believe for a deeper understanding of what exactly should be used, you need a mathematician’s help and not a financial planner…. Sorry, can’t help you much there!

  19. Anonymous says:

    Hi Chetan,

    Again, the way I do this is by automating the trial and error process for the compound interest formula.

    You need to keep changing the “rate” value till you get the final amount of Rs. 10,884.

    You can automate this by using the “Goal Seek” function in Excel. (Tools menu > Goal Seek).

    BTW, the yield in your example works out to 0.72774%.

    But probably you meant the Principal to be Rs. 10,000. In this case, the yield would be 8.25059%.

  20. Anonymous says:

    Hi Santosh,

    Thanks for the compliments!

    If you reduce the tenure, your EMI remains the same. It means that in each EMI, you repay more principal and less interest.

    If you reduce the EMI, your tenure remains the same. Since you repay the loan over a longer term, it means you have to pay more interest. So, in each EMI, you repay less principal and more interest.

    So, if your intention is to save money, keeping the EMI same and reducing the term of the loan would result in you saving a lot of interest.

    PS: Good that you are planning to prepay your loan every year. A home loan is a large liability, and its good to become debt free sooner!

  21. Santosh says:

    Dear RaagVamdatt,
    Very nice information you have shared. Thanks for this artical.

    Well I have taken the home loan of 24Lakh last 2 year back for 15 years. I have pre-paid the 83000 upto date & planning to pre-pay the extra 1.5 lakh in april month. Due to prepay 83 Thousand bank has reduced the tenure by one year & remains 145 months (Initail tenure was 180 but due to interest decreased & pre-pay the principal tenure is now 145) & total outstanding is remaining 22.5 Lakh.

    If I pre-pay the 1.5 lakh could you please tell me the which option (Reducing tenure or reducing the EMI) is saving my money. Just keep in mind that I have planned to pre-pay extra 1.5 lakh extra each year upto 2013 to reduce the principal amount as well as to reduce the cost of home.

    Thanks

    Santosh

  22. How to calculate Internal Rate of Return or Effective Yield?

    I need to get a formula without knowing the Actual Rate of Interest by just knowing principal (P) , Compounding Frequency (m), Duartion (n)..

    Lets say if Maturity Value is Rs 10884 for 390 days when the Principal is Rs 10800, how do I calculate the Effective yield? ( * Hint : Int Rate : 8%)

  23. Can you solve that with an example?

    Are you saying like this..!

    C I = 10000 * ( 1 + 8%/4) ^ 4 *390/365..

    I think it worked but I would appreciate if you could also throw some light on Banker Rounding and how it can be used in EXCEL?

  24. Anonymous says:

    Hi Chetan,

    This amount would be too dofficult to get through a formula. But you can use the loan amrotization calculator (mortgage schedule calculator) mentioned in the article for the same.

    (You can download the loan amrotization calculator here – you need to be logged-in)

    In the calculator, put the principal amount still outstanding as the loan amount, and put the new interest rate. You would automatically get the schedule as the output.

    The calculated EMI amount would be different from your current EMI – this is the EMI that you would pay for the new rate of interest if the tenure remains constant.

    Now, in the “Extra Payment” cell for the first installment (this should be cell E20 in the calculator), put an amount that you want to prepay. This would change the number of EMIs (in cell H9).

    All you need to do is change this amount (in cell E20) till you get the desired number of EMIs (in cell H9).

  25. Anonymous says:

    Hi Chetan,

    Can we not derive the duration (number of years) n = 390 / 365?

  26. I have a loan of just 1 lakh for 60 months with an EMI of Rs 2028/- with 8% Flat rate for the first year , however the rate of interest now has increased to 12% which has added 5 extra months to the existing tenure of 60 months..

    Now if I pay Rs 6119 alongwith the 13th EMI, then my tenure remains the same at 60 months without further increase in interest rate..

    I need to understand how do I get this One-time payment amount through a formula which can work for any Floating Rate which is going to increase the tenure…

    Please provide me with a solution where we can also reduce the tenure normally…

  27. Why 365 and not 365?

    After reply I checked the information on the net and I understood the reasons of using 365 and 360?

    365- to get an accurate interest

    360 – to get a closer answer

    But it also mentions about 366 during a Leap year, I do not understand how to factor the same..

    Can you please explain the same.?

  28. How do I use this formula to get the Maturity Value for an Deposit for less than a year or a duration which is not a whole no?

    I need to get the Maturity value for any amount of deposit when the following variables are known

    Ex: -

    Principal ( P ) – 10,000
    Int ( R )- 8%
    Compounding Freq ( m )- Quarterly ( 4 )
    Duration ( n ) – 390 Days

    I need to use two dates such as Starting Date and Ending Date to get a duration and further use this duration in the Compound Interest formula mentioned below..

    [ C.I.n = P X (1 + R/m)^(m X n ) ]

    Most of the Websites are using a whole number as duration but how do I use it for shorter or odd durations?

    How do I get the value for ( n ) to be used in this formula?

    Please consider the compounding Frequency is Quarterly hence m = 4 ( 12/3 )

  29. Anonymous says:

    Hi Chetan,

    It looks like what you have tried is different from what I have suggested in detail. If you follow the instructions, you should be able to get the new tenure keeping the EMI constant and after paying a lump sum towards repayment of the EMI.

    A mathematical formula for this would be too complex – I try to use the existing tools available. So, wouldn’t be able to help you there.

    Please do share the formula if you get it from someone – it would help me and other readers.

  30. Anonymous says:

    Hi Srinivas,

    It is always a good idea to switch to a lower rate loan, as it results in lots of saving in the long run (even after considering any pre-payment panelty).

    However, the SBI’s 8% offer might not be the best candidate, as it would also offer market-determined floating rate after some time. It would be better if you can lock into a fixed interest rate loan at around 9% – that way, you can be sure that the interest rate wouldn’t change during the entire tenure of the loan.

  31. Srinivas says:

    hello sir,

    This is srinivas

    I have taken a home loan of 1000000 from DHFL at 12% p.a. Now interest rates are got down. I want to transfer this loan to SBI they are giving at 8% p.a,

    Is it suggestible

  32. Hi Raag

    Many Thanks!!

    As you have suggested, I will calculate to see if I am suffering any loss because of new schedule.

    And yes the interest is reduced for me by only 0.25%.

    Please refer to your Note and please tell:

    You have said that upon decreasing the interest rate, the TENURE will get reduced…

    1. Why is it that when there is an increase in interest the Banks will increase the interest component in the EMI….BUT when there is a decrease in interest rates, its just the tenure which gets reduced but the Principal component is not increased accordingly in the EMI.

    Do you feel that banks lack transparency where loans, interests and credit cards etc. are concerned….

    Best Regards
    anne

  33. Hi Raag

    Your article has helped me bigtime in understanding the impact of increased interest rates on existing loans. I need some further info. please if u can..

    I have a dispute ongoing with my bank, as since I had taken the loan of 25 lakhs in 2006 @ 11.25% for 10 years , they had increased the interest a number of times to about 16% and were taking about 95% of the amount towards interest from the EMI, with an increased tenure (how much am unsure of).

    All these changes were made by the bank, without once informing me. Upon complaining they have refunded the extra interest charged till date and have now brought down the interest to 14% and have re-calculated the balance amount AS A NEW LOAN with an increased tenure of about 2 years and the earlier EMI of about 35000/- is now reduced by 6-700/- and the interest component in the EMI is much higher than that in the repayment schedule given to me in 2006.

    Please tell me:

    1. Can the bank increase both the tenure as well the interest component in the EMI at their will, even when age aint a factor.

    2. Was the bank right in re-calculating the outstanding loan amount of about 21 lakhs as a new loan with the new interest rate of 14%.

    As according to the new schedule the bank has started with 9000/- towards the Principal, against the 15000/- towards principal which I had reached according to the old schedule.

    3. As am 43 and does age plays any role if I ask the bank to increase the tenure only, will that be right?

    4. What according to you is the fair solution to this problem?

    Best Regards
    anne

  34. Anonymous says:

    Hi Anne,

    I am glad you liked the article – thanks!

    1. When age is not a factor, the bank usually increases the tenure. When tenure is increased, you repay the same principal in more years, which logically means that you would need to pay more interest. Therefore, the interest component automatically increases as a proportion of the EMI.

    2. The bank might have treated your remaining principal balance as a new loan for operational convenience, as there is a new rate applicable. However, the bank should be able to do the same even while considering it as an old loan.

    I would not be able to comment much without knowing the full details, but here are my thoughts. A new loan / old loan factor should not result in such a huge difference in the principal compinene (Rs. 9,000 vs Rs. 15,000).

    When you say the old schedule had Rs. 15,000 as principal compinent, which schedule are you referring to? Is it the schedule you were given at the time of taking the loan? If that is the case, you are not making an apple-to-apple comparison – that schedule was based on a 11.25% interest rate, whereas your new rate is 14% – so naturally the principal component would go down!

    Please download the amortization schedule calculator from the article “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage“. Please put in your numbers, and find out if you are actually having a loss due to this new arrangement!

    3. At 43, you should be able to ask your bank to increase just your tenure. Usually, banks do not increase the tenure if doing it stratches it beyond 58 years of age. If that is not true in your case, the bank should have no problem in extending just the tenure.

    4. As I said, I am not even sure if this is a problem. So, please find ut the numbers for your case using the amortization calculator, and you would know if it is making a difference.

    Note: By the way, the interest rates have been decreasing right now. I hope your bank is decreasing the rate applicable to you as well – and therefore, reducing the tenure!

  35. Anonymous says:

    Hi Anne,

    I don’t think this is an issue with transparency.

    The logic is simple:

    When interest rate goes up, you need to pay more interest. Since the EMI amount is kept the same, the tenure increases.

    This also means that you take more time to repay the principal, which in turn means that you would pay more interest over the tenure of the loan. Thus, the proportion of interest increases in the EMI.

    When interest rate goes down, you need to pay less interest. Since the EMI amount is kept the same, the tenure decreases.

    This also means that you take less time to repay the principal, which in turn means that you would pay less interest over the tenure of the loan. Thus, the proportion of interest reduces in the EMI.

    Thus, the principal component increases in the EMI when interest rate goes down, and EMI is kept the same.

  36. Thanks Raag

    But the problem I am facing is this that the Bank has increased the tenure and have also increased the interest component in the EMI, that means that I am paying a very highly increased interest component in the EMI, every month.

    I feel the bank should have just increased the tenure and recovered the increased interest rates, by making me repay for a longer time.

    Is the bank justified in increasing both the tenure and the interest component in the EMI?

    Regards

  37. Hi Raag…

    now got it all clear…..many many thanks….

    Best Regards.

  38. Anonymous says:

    Hi Anne,

    You are missing the whole point – when the tenure increases, the interest component of the EMI increases automatically – the bank doesn’t do it.

    The bank has only increased the tenure, and as a consequence, the interest component of the EMI has increased.

    You can download the home loan amortization calculator from this article, and see this for yourself by changing the tenure.

  39. Anonymous says:

    Hi Chandrika,

    The pros and cons can be judged only if I have all the information about your existing loan (the amount, interest rate, how long ago it was taken, etc).

    In any case, at this stage, I do not comment on specific products on the website. Since you have all the information, I am sure you would be able to judge the pros and cons yourself.

  40. Chandrika says:

    I want to switch my home loan from IDBI to SBI.
    SBI offers me 8% fixed on first year, 9% fixed in 2nd and 3rd years. Floating PLR -2% rest of the years. IDBI chares 2% for pre-closure and SBI charges 0.5% for mortgage.
    Kindly suggest the pro’s and con’s for the same.

  41. Anonymous says:

    Hi Raag, Thank You for responding…Here are the details…

    Bank : IDBI
    Current ROI : 9.75
    Loan Sactioned On : August 2005
    Outstanding Amount : 23.5 Lacs
    Current EMI : 23,112
    Tenure : 215 Months

    Pls. let me know your viewpoint so that i decide it better…

    Best Regds

  42. Anonymous says:

    Hi,

    As I had mentioned earlier, at this stage I would not be able to comment on specific products on the website.

    You would have to take a call depending on the money that you expect to save by switching. You need to consider the current interest rate as well as the possible movement of interest rates in the future, as well as the foreclosure charges.

  43. I have sold my flat and foreclosed my home loan in Jan 2010.
    I am going to take tax benefit on principal paid (Rs. 7022) and interest paid (Rs. 106344)Till Dec 2009.
    To foreclose my home loan, I paid,

    Principal Outstanding
    Late Payment Penalty
    Cheque Bouncing Charges and Other Charges
    Prepayment Charges @ 2.21% at O/S Principal

    Out of these, which amount I can claim for tax deduction under any head.

  44. Nageswar Reddy says:

    Hi I have taken home loan for 25 Lakhs for 15Years tenure from LICHFL, Now I want to reduce tenure from 15 years to 5 years, by increasing the EMI, is that possible?

    Thanks and regards
    Nageswar

  45. Monthi says:

    I have few queries wrt the home loan taken in joint names ie my brother(unmarried), mother and myself. I am married and am not contributing financially to the loan amount. My brother is taking care of it along with my sister. We have a home loan of interest rate of 13.5% approx. My brother wants us to transfer the loan to another bank with less interest rate. At present it is floating rate. He is determined to go for a fixed interest rate for fixed EMI. Loan amount is 12 lakhs. What should we do? Transfer the loan to another bank which is offering around 12% fixed rate or 9.5% floating rate? Which is the best option?

  46. Hello Sir, land is in my father’s name and we r constructing a house. v need hom loan. my father dnt hv considerable income. i’m salaried person.. cn i go for joint loan. wat r the other options available.. please advise

  47. Very nice post. I absolutely love this website.
    Keep writing!

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