₹20 lakh home loan amount: How much can a borrower save by increasing the EMI by ₹5,000 a month? Calculation here

Have you taken a home loan? Planning repayments before you borrow protects your borrowing capacity and credit score. One simple lever is the EMI: paying a little more each month can cut your interest bill sharply.

Even a ₹5,000 increase in the monthly EMI can shorten the repayment period by several years and save lakhs of rupees in interest.

Take a ₹20 lakh home loan at an illustrative 8.5% a year for 20 years. Raising the EMI by ₹5,000 a month would save about ₹9.85 lakh in interest, assuming the rate stays unchanged for the whole tenure. Here is the calculation.

₹20 lakh home loan: Regular EMI vs higher EMI

At an interest rate of 8.5% per annum and a repayment tenure of 20 years, the borrower’s monthly EMI would be about ₹17,356 (approximately). Over the entire tenure, the total interest payable will be approximately ₹21.66 lakh, bringing the total repayment to about ₹41.66 lakh.

If the borrower increases the monthly EMI by ₹5,000 to ₹22,356, the loan can be repaid in just about 11 years and 11 months. In the process, it saves nearly 9 years of the entire repayment tenure and thus helps the borrower become debt-free much earlier.

Note: The calculations discussed above are illustrative only. For individual cases, refer to the home loan calculators on your lending institution’s website.

How much can the borrower save?

Therefore, the calculation in this case is straightforward, as discussed above. With the regular EMI, the borrower would pay approximately ₹21.66 lakh in interest. Whereas, with the higher EMI, the total interest outgo on the home loan would fall to approximately ₹11.81 lakh. Furthermore, the time saved is about 8 years and 2 months.

Interest saved = ₹21.66 lakh − ₹11.81 lakh = ₹9.85 lakh (approximately).

By following this, the borrower can also clear the entire home loan about 8 to 9 years earlier, thus reducing the long-term financial burden.

Still, when making home loan decisions, all borrowers should analyse their financial reality, repayment capacity, monthly budgets, emergency savings, and other associated financial obligations before increasing their EMI commitments.

Furthermore, the actual savings will depend on the applicable interest rate, the outstanding loan balance, and the repayment terms. The calculation discussed above is illustrative in nature and assumes a constant interest rate throughout the loan tenure. In case of doubts or any hesitation, it is wise to seek guidance from a certified financial advisor and plan your repayments accordingly.

Disclaimer: The calculations are illustrative and assume a constant interest rate throughout the loan tenure. Actual savings may vary depending on the lender’s terms and repayment schedule. Consult a qualified financial adviser before making borrowing decisions.