| Most home loan borrowers opted for
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| | repaying a higher proportion of interest
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| floating rate loans in the past five
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| | in the initial EMIs. The interest can
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| years. Unfortunately, banks increased the
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| | hover anywhere around 80% in the
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| rate on these loans three to four times
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| | beginning.
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| in the one and a half years. Now, the
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| | Interest component falls down and
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| borrowers are feeling the heat of
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| | principal component goes up as a
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| increased rate of interest.
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| | proportion of the EMI with the loan
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| Those who thought themselves to have
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| | tenure. For that reason, many of home
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| sailed safely by buying floating rate
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| | loan borrowers assume not to prepay an
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| loan at 7% in 2003 are now highly tensed.
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| | apt way, say, after half way through the
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| Most banks are charging around 11.50%
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| | loan tenure, because the interest falls.
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| interest rate.
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| | The interest outgo as a percentage on
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| Let's take a case supposing home loan
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| | outstanding principal will remain same
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| amount to be Rs 10 lakh and the tenure as
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| | every time. As home loan rate is
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| 20 years. With the increased rates, the
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| | evaluated using reducing balance method,
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| EMI changes from Rs 7,753 to Rs 10,000 or
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| | the interest rate is always evaluated on
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| if one wants to keep the EMI amount same,
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| | the remaining outstanding principal.
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| the tenure would increase by more than 10
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| | Now, the interest which requires to be
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| years.
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| | distributed accordingly in the remaining
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| Kind of Options Available
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| | tenure would also be low, resulting in
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| It is always adviseable to pre-pay any
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| | lower interest amount component. However,
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| loan, including the best home loan, if
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| | there would come no change in the rate of
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| you have extra cash available with you.
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| | interest which will remain same at both
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| Most people think that the principal
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| | the periods.
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| amount outstanding has not reduced even
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| | Your home loan tenure should not be a
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| after paying EMI for three to four years.
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| | driving factor for you to narrow down on
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| Considering the above example again, if
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| | the option of prepaying the loan. It
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| the borrower prepays at the end of fourth
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| | should largely depend on current interest
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| year, the outstanding principal is still
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| | rate and the amount of spare cash with
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| around Rs 9 lakh. The borrower is
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| | you.
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