Spend, Save and Invest Smartly

# Home loan taking too long to repay?

You have been paying your home loan EMI’s regularly each month. After a few years you check the amount of home loan principal left which you have to repay. There is a nasty surprise waiting..... Your pending home loan principal amount is almost the same as when you availed the home loan. So why is home loan taking too long to repay?

### Why in spite of paying your home loan EMI’s regularly your principal due (outstanding) is almost the same after 2 years?

Does your bank think you are poor at Math’s? Is this a trick to keep you paying home loan EMI’s for a long time? You be the judge..... You have availed a floating rate home loan of INR 40 Lakhs paying an interest of 11% for a tenure of 20 years from a reputed bank. Your home loan EMI is INR 41,288 per month. This is an EMI of INR 4,95,450 a year. Take a look at the table below (Figures in INR).

Table 1

Year EMI (Year) EMI Principal(Year) EMI Interest(Year) Principal to be repaid
1 4,95,450 58,333 4,37,117 39,41,667
2 4,95,450 65,084 4,30,366 38,76,583
3 4,95,450 65,084 4,30,366 38,76,583
4 4,95,450 81,018 4,14,432 37,22,950
5 4,95,450 90,393 4,05,057 36,32,557
6 4,95,450 1,00,853 3,94,597 35,31,704
7 4,95,450 1,12,524 3,82,926 34,19,180
8 4,95,450 1,25,545 3,69,905 34,19,180
9 4,95,450 1,40,073 3,55,377 31,53,562
10 4,95,450 1,56,282 3,39,168 29,97,280
11 4,95,450 1,74,367 3,21,083 28,22,913
12 4,95,450 1,94,544 3,00,906 26,28,369
13 4,95,450 2,17,057 2,78,393 24,11,312
14 4,95,450 2,42,174 2,53,276 21,69,138
15 4,95,450 2,70,199 2,25,251 18,98,939
16 4,95,450 3,01,466 1,93,984 15,97,473
17 4,95,450 3,36,351 1,59,099 12,61,122
18 4,95,450 3,75,273 1,20,177 8,85,849
19 4,95,450 4,18,699 76,751 4,67,150
20 4,95,450 4,67,150 28,300 0

### Take a look at the home loan EMI’s you are paying

You pay INR 41,288 as a home loan EMI a month. This is INR 4,95,450 a year. After 2 years you have paid INR 9,90,900 as home loan EMI’s. You still have to repay a home loan principal of INR 38,76,583 (38.76 Lakhs). You have availed a home loan of INR 40 Lakhs. After paying home loan EMI’s of INR 9,90,900 over 2 years you still have to repay a principal of INR 38.76 Lakhs.

### How is this possible?

The culprit is the interest you pay on the home loan. Take a look at the home loan EMI’s you are paying for the first 2 years. In the first year you are paying a Home Loan EMI of INR 4,95,450 of which INR 58,333 is paid towards the Home loan principal and INR 4,37,117 is paid towards the Home loan interest. In the second year you are paying a Home Loan EMI of INR 4,95,450 of which INR 65,084 is paid towards the Home loan principal and INR 4,30,366 is paid towards the Home loan interest. You are paying a massive INR 8,67,483 (INR 4,37,117 + INR 4,30,366) as interest on your home loan over 2 years. You see a mere INR 1,23,417 (INR 58,333 + INR 65,084) goes towards repaying your Home Loan principal .This means you still have to repay a principal of INR 38.76 Lakhs on your home loan borrowed amount of INR 40 Lakhs even after 2 years of paying the home loan EMI’s. You are paying a very high interest of 11% on your home loan. The higher the interest you pay on your home loan, slower your principal outstanding reduces in the early years of your home loan repayment. This means you need to avail a floating rate home loan from a bank which offers you a lower rate of interest.

The interest paid on your home loan is more than the home loan amount you have availed.....Is this true You have availed a floating rate home loan of INR 40 Lakhs for a tenure of 20 years at an interest of 11%.The yearly EMI you pay is INR 4,95,450. Your home loan has a tenure of 20 years. This means you have paid EMI’s of INR 99,09,009 (INR 99 Lakhs) on your home loan over a 20 year tenure. This is more than double the home loan you have availed of INR 40 Lakhs.

### What about the interest you have paid on the home loan?

You pay an interest of INR 59,09,009 (INR 59 Lakhs) on the home loan you have availed over a time period of 20 years. (Add EMI Interest Year in the Table 1). Simple You have availed a home loan of INR 40 Lakhs paying an interest of 11% over a tenure of 20 years. You have repaid an EMI of INR 4,95,450 per year on your home loan. You have repaid EMI’s of INR 99 Lakhs over a tenure of 20 years. You have repaid EMI’s interest of INR 59 Lakhs over a tenure of 20 years on your home loan.

Over 20 years you have repaid:
Home loan EMI (INR 99 Lakhs) = EMI (Interest of INR 59 Lakhs ) + EMI (Principal of INR 40 Lakhs ).
What do you notice..... You have paid INR 59 Lakhs in interest on your home loan which is more than the home loan amount of INR 40 Lakhs you have availed. Remember "Interest on debts grow without rain". Always avail a floating rate home loan from a bank which offers a lower rate of interest. This will save you lakhs of rupees on your home loan in interest payments.Now you know why home loan takes too long to repay.