Many of us have availed a home loan.
Many of us have been paying EMIs for many years now.
Yet few among us have increased our EMIs, in line with our annual salary hikes. We continue paying the same EMI, month after month, year after year.
Financially, this indifference could cost a lot. And emotionally, the debt burden has to be borne for many years.
Instead, if we are smart and prudent enough to step up our EMIs, we stand to gain a lot (a lot indeed)... both in monetary and psychological terms.
Let's see how:
Original Loan
Suppose our loan amount is Rs.75 lakhs for a 20-year tenure and at 9.5% p.a. interest rate. The EMI payable on the same, works out to around Rs.70,000 per month.
Accordingly, over a 20-year period, our total payout would be around Rs.1.68 crores. This includes principal Rs.75 lakhs and interest Rs.93 lakhs.
In other words, we would end up carrying the debt burden for 20 years and pay interest of 1.24 times the principal amount.
5% increase in EMI every year
Now, suppose we are able to pay 5% additional EMI year on year, based on our annual increments.
If that be so, we would have cut down our loan tenure to only 12 years. And, the total payout would be Rs.1.33 crores i.e. principal Rs.75 lakhs and interest Rs.58 lakhs (which is only 0.77 times the principal amount).
In other words, with mere 5% increase every year in the EMI, we can
a) bring down our debt burden by 8 years and
b) also save Rs.35 lakhs towards interest expense.
These are big (big) benefits indeed.
10% increase in EMI every year
I guess many among us can afford even a 10% jump in EMI every year.
This would drasctically reduce your loan tenure to less than 10 years, at around 9 years 5 months. The total payout would drop to Rs.1.21 crores (principal - Rs.75 lakhs and interest Rs.46 lakhs).
In other words, with a 10% jump in EMI year on year,
a) the debt is gone in less than half the time
b) and the interest cost is also halved to Rs.46 lakhs.
You are making a terrible mistake, if you are not taking advantage of this bonanza.
Mere 1% increase in EMI every year
Ok. Let's assume that we are not so lucky with our increments. But, can we at least think of 1% increase every year in our EMIs?
Even this seemingly nominal and insignificant increase would cut your loan tenure by 3 years to around 17 years. Plus, around Rs.13 lakhs less interest payout at Rs.80 lakhs (as against Rs.93 lakhs).
Definitely, not a bad deal!
Concluding: Don't let your useless and needless expenses expand, to gobble up the additional income, on account of increments. Instead, with each salary jump, instruct your bank to deduct higher EMIs. This one judicious act of yours, would provide immense boost to your net worth.
Note:
For simplicity sake, in this blog post I have ignored that tax benefits on home loan interest payment. But given the numbers involved, this may not always play a significant role in your decision making. Still, you can cross-check this point, before going ahead with your EMI step ups.
Many of us have been paying EMIs for many years now.
Yet few among us have increased our EMIs, in line with our annual salary hikes. We continue paying the same EMI, month after month, year after year.
Financially, this indifference could cost a lot. And emotionally, the debt burden has to be borne for many years.
Instead, if we are smart and prudent enough to step up our EMIs, we stand to gain a lot (a lot indeed)... both in monetary and psychological terms.
Let's see how:
Original Loan
Suppose our loan amount is Rs.75 lakhs for a 20-year tenure and at 9.5% p.a. interest rate. The EMI payable on the same, works out to around Rs.70,000 per month.
Accordingly, over a 20-year period, our total payout would be around Rs.1.68 crores. This includes principal Rs.75 lakhs and interest Rs.93 lakhs.
In other words, we would end up carrying the debt burden for 20 years and pay interest of 1.24 times the principal amount.
5% increase in EMI every year
Now, suppose we are able to pay 5% additional EMI year on year, based on our annual increments.
If that be so, we would have cut down our loan tenure to only 12 years. And, the total payout would be Rs.1.33 crores i.e. principal Rs.75 lakhs and interest Rs.58 lakhs (which is only 0.77 times the principal amount).
In other words, with mere 5% increase every year in the EMI, we can
a) bring down our debt burden by 8 years and
b) also save Rs.35 lakhs towards interest expense.
These are big (big) benefits indeed.
 |
| Increase your EMI every year and reap massive UNIMAGINABLE benefits. |
10% increase in EMI every year
I guess many among us can afford even a 10% jump in EMI every year.
This would drasctically reduce your loan tenure to less than 10 years, at around 9 years 5 months. The total payout would drop to Rs.1.21 crores (principal - Rs.75 lakhs and interest Rs.46 lakhs).
In other words, with a 10% jump in EMI year on year,
a) the debt is gone in less than half the time
b) and the interest cost is also halved to Rs.46 lakhs.
You are making a terrible mistake, if you are not taking advantage of this bonanza.
Mere 1% increase in EMI every year
Ok. Let's assume that we are not so lucky with our increments. But, can we at least think of 1% increase every year in our EMIs?
Even this seemingly nominal and insignificant increase would cut your loan tenure by 3 years to around 17 years. Plus, around Rs.13 lakhs less interest payout at Rs.80 lakhs (as against Rs.93 lakhs).
Definitely, not a bad deal!
Concluding: Don't let your useless and needless expenses expand, to gobble up the additional income, on account of increments. Instead, with each salary jump, instruct your bank to deduct higher EMIs. This one judicious act of yours, would provide immense boost to your net worth.
Note:
For simplicity sake, in this blog post I have ignored that tax benefits on home loan interest payment. But given the numbers involved, this may not always play a significant role in your decision making. Still, you can cross-check this point, before going ahead with your EMI step ups.
