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Part repayment of home loans

Part repayment of home loans
 

A fork in the road: Part repayment of mortgage.

To wash your hands off repaying your home loan is one of the most satisfying feelings one can feel. We all think that we will divert every bit of extra income to repaying the loan. But when we go to make a part repayment with say, a bonus we receive from work, the bank offers us two options i.e. to reduce the monthly home loan EMI and retain the tenure of the loan or to reduce the tenure of the loan and retain the EMI.

Both of these options have their own pro’s and they both will lighten the burden of the home loan. By choosing to reduce the tenure of the loan, you will be able to pay the loan well in advance as well as reduce the amount of interest you would need to pay the bank. By choosing to reduce the monthly EMI you lighten the burden on your monthly budget leaving you with surplus funds every month for other expenses.

Banks, by default, offer the option of reducing the tenure and keeping the same EMI. This would mean that while you pay the same amount every month, you end up cutting down the number of years you are required to repay the loan. This means that the number of years which get reduced are the number of years’ worth of money you would save, which would otherwise have gone to the bank.

Which option you chooses would depend on your present circumstances, but they both offer a method to reduce the amount you pay either monthly or on the whole.

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