Before taking a home loan of ₹ 1 crore, understand every penny; The mathematics of EMI of 15, 20 and 30 years which will save you lakhs of rupees.

Having a home of one’s own is the biggest dream of every family. But in today’s times, especially in big cities, to fulfill this dream one has to take a huge home loan. When it comes to a big home loan like ₹1 crore, just looking at the price of the house or its location is not enough. You also have to understand the deep mathematics of the loan which is going to have a direct impact on your pocket every month for the next many years. If you sign the loan agreement without thinking, you may face serious financial crunch in the future. Let us understand in very simple and practical language what is the real game of ₹ 1 crore home loan. Precise Scientific Mathematics to Decide EMI Home Loan Monthly Installment (EMI) mainly rests on three pillars: Loan Principal, Interest Rate, and Loan Repayment Period (Tenure). Interest rates usually vary between 8.5% to 9.5% depending on your CIBIL Score and the bank’s policy. Banks use this financial formula to calculate your EMI: $$E = P \cdot r \cdot \frac{(1+r)^n}{(1+r)^n – 1}$$ Here: $E$ = EMI paid every month $P$ = Principal Amount of the loan $r$ = Monthly Interest Rate (i.e. $\frac{\text{Annual Rate}}{12 \cdot 100}$) $n$ = Tenure in months Complete breakdown of tenures of 15, 20 and 30 years You can easily understand how much impact the loan tenure has on your total repayment from the table given below at an assumed interest rate of 8%: Loan Tenure (Tenure) EMI per month Total interest paid to the bank Total payment (Principal + Interest) 15 years ₹95,565 approx ₹72,01,700 approximately ₹1,72,01,700 20 years ₹83,644 approximately ₹1,00,74,562 approximately ₹2,00,74,562 30 years ₹73,376 approximately ₹1,64,15,525 approximately ₹2,64,15,525 20 years calculation: The amount taken, the same interest if you take a loan of ₹ 1 crore. If you take it for 20 years, your monthly EMI will be ₹ 83,644. This deal seems simple, but keep in mind – in 20 years, apart from the principal amount, you will pay only ₹ 1,00,74,562 as interest to the bank. That is, the amount of money you borrowed for the house, the bank will charge you extra in the name of interest. Tenure of 30 years: The biggest deception of low EMI. Many people choose a long tenure of 30 years to keep their monthly budget light. With this your monthly EMI reduces to ₹73,376. This seems like a savings of ₹ 10,000 per month, but if you look at the total interest, it will blow you away. In 30 years, you will pay more than ₹ 1.64 crore in interest only to the bank! That means, in exchange for a house worth ₹1 crore, you would have handed over a total amount of more than ₹2.64 crore to the bank. Tenure of 15 years: A little strict, but saving lakhs. If your monthly income is good, then 15 years is the best option for you. In this, your EMI will increase to ₹ 95,565, which may seem a bit heavy in the beginning. But thanks to this smart decision, your total interest will come down to just around ₹72 lakh. You will not only be free from debt years ago, but will also save yourself around ₹92 lakh from the clutches of the bank. The ‘Golden Rule’ for deciding home budget: Financial experts believe that your total home EMI should never be more than 30% to 40% of your total monthly in-hand salary. If half of your salary goes directly into the loan installment, then the entire balance of children’s education, medical emergency, daily household expenses and investments for the future (like SIP or PPF) will get disturbed. Include these hidden expenses also in the budget. Most people calculate only the price of the house and EMI while taking a home loan, which is a big mistake. Apart from this, there are many such big expenses which directly rob your pocket: Registry and Stamp Duty: About 5% to 7% of the price of the property goes in this. Interior and fittings: The cost of woodwork, paint and electrical equipment to make a new house habitable. Society maintenance and parking charges: Fixed charges paid every month or annually which form part of your regular budget. Easy way out of the loan trap (Pre-payment Strategy) After taking the loan, as your income increases in the future or you get a bonus in your job, then instead of spending that extra money, choose the option of partial pre-payment. Depositing the principal amount in advance equal to just one or two additional EMIs a year reduces your loan tenure by several years and directly saves lakhs in total interest. Instead of making home loan a burden, make it a strong foundation for your secure future with proper calculations and planning.