Clever step when you have low interest rates from bank.

Never get dazzled by the words ‘Low EMIs’ – Look before you leap

For the EMI payers, those are the magical words. Be clever and plan your EMI. Understand that EMI has two components. a) Principal and b)Interest. Always ask your lender for the break up of your EMI. Get clear idea about the components. You do not expect to waste lot of money with the tempting tagline of Low EMIs.

What if – interest gets lowered and EMI remains the same

Let us remove the low EMI motive from our mind. Now, let us target that we must pay lower interest component to the bank. You can approach the bank that has the lowest interest rate. But apply a trick. Do not reduce the EMI. In this scenario, you are brilliantly covering the principal amount component along with less interest component.

You win half the battle here. Whenever the bank offers you to pay low EMI, do the math. You must not increase the duration and pay higher interest. In fact, you must concentrate on covering the principal amount component.

Let us understand this theory with an example. If I am with a home loan of Rs.30,00,000 at an interest rate, 9.6% for 12 years, my EMI will be Rs.35,000. Where on a large scale, the break up of principal and interest component is 40.75% and 59.25%, respectively. For example, if the bank offered a low interest rate of 9.3%. Your EMI lowers down to, Rs.34,000.

The clever step here is to go and opt for the 9.3% interest rate, and keep the EMI constant, i.e., Rs. 35,000, instead of reducing it to Rs. 34,000. Mention the bank personnel that you want to add that Rs. 1000 to your principal amount. So, automatically, the principal amount comes down which leads to early closure of your home loan.

Check out and calculate more by following the link below.

http://loanyantra.com/Calculators.aspx#EMI-Calculator

We wish you to stay happy even when you are with the loan.

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