Banks focus on the monthly payment. We focus on the total cost. See how interest eats into your money and how to fight back.
Paying even a little extra directly reduces your principal, slashing total interest.
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When you take out a loan, the "sticker price" (the principal) is only part of the story. The interest rate and the term length determine the final price tag.
Because interest is calculated on your remaining balance, paying even $50 extra a month reduces that balance faster. This has a snowball effect: lower balance = less interest charged next month = more of your payment goes to principal.
Pro Tip: Making one extra mortgage payment per year can shave years off your loan term!
EMI (Equated Monthly Installment) is a fixed monthly payment comprising principal and interest. It's calculated using the formula: P × r × (1+r)^n / ((1+r)^n - 1), where P is principal, r is monthly interest rate, and n is tenure in months.
Prepayment is beneficial if your loan interest rate exceeds your investment returns. For home loans below 7-8%, investing surplus funds in equity may yield better long-term returns.
Longer tenure means lower EMI but higher total interest paid. For example, a ₹50L loan at 8% for 20 years costs ₹41.9L in interest, while the same loan for 10 years costs ₹21.8L in interest.
Fixed rates remain constant throughout the loan tenure, providing payment certainty. Floating rates change with market conditions (MCLR/repo rate), potentially saving money when rates fall but increasing costs when rates rise.