On Home Loans

Prepayment of loan, reducing EMI

My husband and I recently took a home loan from LIC.  I am planning to do a part-payment of Rs 10 Lakh this year-end.  After paying partially, is there any way I can reduce my EMI?  People say that only tenure can be reduced.

Suba Murugan

When you make a part-payment, the amount will be deducted directly from your principal, which means you will pay up your loan faster than the term it requires. If you reduce your EMI, the opposite happens, your loan tenure increases. It sort of defeats the purpose if you choose to prepay partially, and then also opt for a reduction in EMI. Even if your principal is reduced, you might still be shelling out more interest with an increased tenure; the only relief will be less stress on the monthly budget.

However, if for some reason you wish to prepay and then request for a reduction in EMI, you can always approach your bank and take this up for discussion. Banks always consider such requests, depending on the individual's situation. Since you are opting to partially prepay, the bank should ideally have no issues complying with your request. In an ideal scenario, closing off the debt should be a priority, even if for a temporary period like a few years, you wish to reduce the stress on your monthly finances. Remember, the longer the tenure, the more the interest you will be shelling out. You can utilise online calculators to calculate the amount of interest you will actually shell out with an increase in tenure, i.e. when you reduce your EMI.

(Adhil Shetty, CEO, BankBazaar.com, will respond to questions on home loans.E-mail questions to: blproperty@thehindu.co.in)

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