Home Loan EMI: 90 percent people make this mistake while taking a home loan, then it takes double the time to repay the loan

Breaking News, Digital Desk - It  's everyone's dream to own a home, but often it requires a home loan and a lot of savings. After taking a home loan, most people make a common mistake: they increase the loan tenure to keep their EMI (equated monthly installment) low. 

This results in a loan that could have been repaid in 20 years taking 25-30 years to repay, and they end up paying a lot more in interest. (Bank home loan news)

How does the tenure of home loan increase?

When interest rates change, the home loan repayment period increases. Most people do not pay attention to this in the beginning. Later when they realize that their loan period has become very long, they complain about it to the bank. (Home loan updates)

Let us understand this better with an example-

Suppose you have taken a home loan of ₹30 lakh for 20 years at 8% interest rate, which will make your EMI around ₹25,093. Home loans are usually at a floating rate, which depends on the repo rate (the rate at which RBI lends money to banks). 

Suppose after 5 years your interest rate increases to 11%. By this time, your outstanding principal amount will be around ₹26 lakh, as the initial EMI has a higher interest component and a lower principal component.

In the situation after 5 years, you will feel that now 15 years of EMI are left, but this does not happen. Actually, as the interest rate increases, it is adjusted with the period of your loan. 

This is done so that the customers do not have to bear the burden of high EMI. At the same time, banks also want to do this, because the longer you keep paying EMI, the more the bank will earn from you.

So if your EMI is kept the same as before at Rs 25,093, then the remaining period of your loan will not be 15 years but 28 years. 

Here, if your EMI is considered on the basis of 15 years, then it will increase to around Rs 29,500. In this way, what you were going to repay in 20 years, it will take you about 33 years to repay it.

How to protect yourself from such situations?

If you do not want your home loan tenure to increase due to rising interest rates, you will have to approach the bank and get your loan restructured. 

This means that instead of extending the tenure, you will request the bank to increase your EMI as per the new interest rate. 

Most customers do not take this step and do not get their loan restructured by the bank, which increases their loan tenure. Therefore, it is important to talk to the bank immediately when interest rates increase.