Can Home Loan EMIs Be Customized?

Anyone who wishes to take a home loan should be familiar with the concept of Equated Monthly Instalments, or EMI. This concept refers to the monthly instalment that you have to repay on your home loan.

At the time of availing a home loan, EMI is calculated by your lending institution based on the borrowed amount, sanctioned rate of interest and loan tenure. As would be evident, the quantum of EMI would be higher if the loan amount is larger, interest rate is higher and the duration of repayment is shorter.

should interest rate be the only factor while choosing a home loan

With the loan amount generally fixed as per your need and the interest rate determined by the lending institution, a longer repayment period would result in lower EMIs. At first glance, lower EMIs may look better as you have to shell out less money every month, but in the longer run, it would add to the interest burden that you would be paying on the loan.

To give you an idea of the amount of EMI, assume that you have taken a home loan of Rs 20 lakh at 10% interest for a period of 10 years. Assuming a processing fee of 2% of loan amount (Rs 40,000), the total amount payable would work out to Rs 32.12 lakh which translates into an EMI of Rs 26,430. If the same loan is repaid over 15 years, the total amount payable would be Rs 39.08 lakh, which works out to an EMI of Rs 21,492. Thus, increasing the loan tenure by 5 years decreases the EMI by nearly Rs 5,000 but results in an increase of about Rs 7 lakh in the total amount repaid to the lender.     

Financial institutions like PNB Housing Finance also offers ‘Step Up EMI’ option to self employed customers. This simply means that if your business is comparitively nascent, you can pay smaller EMI on your home loan and gradually increase it as your business grows. This helps you hedge any unnecessary burden on monthly outflow and put more focus on the business venture.

But remember, just to pay off the home loan debt, you should not increase the EMI and reduce the tenure to a length that it may burden monthly expenses or do not leave you with enough funds for any contingency. Also, bear in mind, the interest on home loans are in single digit whereas all other forms of loans have a higher interest rate. In case you have any other similar liability, it is prudent to fulfill that obligation first instead of home loan. You may also search for other investment channels which may give you a higher return that what you are shelling on home loan.

Needless to say, the EMI suitable for an individual would be person specific considering his or her income stream, profile of expenses and the life-stage at which the person is at the time of taking the loan. The customizations can depend on the age and circumstances of the individual — younger people, for instance, can get longer tenures compared to older people.

Thus, personal customisation of EMI is necessary so that repayment can be made smoothly and without causing any inconvenience, both to the borrower and lender.

The borrower must keep in mind that penalties for defaults in repayment of EMIs are generally severe. So, utmost caution should be taken while fixing EMIs.

In order to determine your specific EMI, you can use a Home Loan EMI Calculator. One such calculator is designed by PNB Housing Finance. It is a simple user-friendly tool and will give you instantly the approximate value of the monthly EMI on a home loan. By simply entering the principal home loan amount you wish to take, duration of loan, and expected interest rate in the respective fields, this tool will calculate the EMI amount instantly giving you a reasonable idea of monthly outflow towards your home loan repayment.

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