Tenures of home loans, Smart plan cuts EMIs

If you have taken a home loan, you know that it creates a big hole in your purse every month, in the shape of equated monthly installment (EMI). However, if you plan smartly, you could reduce the te¬nure, and therefore the interest component in your loan — in some cases reducing it by half.

For instance, if you take a 20-year home loan of Rs 10 lakh, you have to pay an EMI of Rs 11,361. But if you are able to set aside another Rs 3,000, you can cut the tenure of your installments by 48 per cent and save around 53 per cent in interest. The scheme works in those cases where a bank grants a home loan and at the same time opens a current account, through whi¬ch the EMI is to be paid. Normally, banks cha¬rge 0.5 per cent higher for such schemes than the normal home loan rate. Among those offering such sche¬mes is the State Bank of India offers and some overseas banks such as HSBC, Standard Chartered and Citi¬bank.

“Since the interest rate will always be higher than the deposit rate, this is an ideal product in which one can save a lot on the interest part and clear off the loan at a faster rate,” a senior SBI official said.

A bank does not pay any interest on the amount ke¬pt in a current account. But there’s an advantage to putting extra money in it. The interest you pay on your home loan is calculated on the principal amount outstanding minus the amount that is available in the account. This is calculated every month, but on a daily basis. Although there is no change in the EMI amount, the tenure is reduced by the bank depending on how much interest has accrued from your money in the current account.