Question 1

How is home loan EMI calculated?

Accepted Answer

EMI is calculated using the formula: EMI = P × r × (1+r)^n / [(1+r)^n - 1], where P = Principal amount, r = monthly interest rate (annual rate/12/100), n = number of months. The calculation ensures equal monthly payments throughout the loan tenure, with the principal-interest ratio changing each month.

Question 2

How does loan tenure affect total interest paid?

Accepted Answer

Longer tenure means lower EMI but higher total interest. For example, on a ₹50 lakh loan at 8.5%: 15-year tenure = ₹49,236 EMI with ₹38.6L total interest; 20-year tenure = ₹43,391 EMI with ₹54.1L total interest; 30-year tenure = ₹38,447 EMI with ₹88.4L total interest. Choose shorter tenure if affordable.

Question 3

Should I make prepayments on my home loan?

Accepted Answer

Yes, prepayments significantly reduce total interest and loan tenure. Even small additional payments can save lakhs. Best strategy: make prepayments in early years when interest component is highest. Most banks allow prepayment without penalty for floating rate loans. Fixed rate loans may have prepayment charges.

Question 4

What is a good EMI-to-income ratio?

Accepted Answer

Banks typically approve loans where EMI does not exceed 40-50% of monthly income. However, financial advisors recommend keeping EMI below 30-35% for comfortable finances. Factor in other existing EMIs (car, personal loans) when calculating this ratio. Higher ratio may stress your monthly budget.

Question 5

What are the tax benefits on home loan EMI?

Accepted Answer

Principal repayment: Up to ₹1.5 lakh under Section 80C. Interest payment: Up to ₹2 lakh under Section 24(b) for self-occupied property (no limit for let-out). Additional ₹50,000 under Section 80EEA for first-time buyers (affordable housing). These deductions are available only under the old tax regime.

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