How to Save Big on Your Home Loan: Tips From Shreya Jaiswal

Is buying a home a financial or an emotional decision? Shreya Jaiswal, a Chartered Accountant and digital creator, emphasizes that while buying a home often comes from the heart, paying off the home loan should be approached strategically. She shares her insights on understanding loan structure, how prepayments can save you money, and why timing is everything when it comes to interest payments.

1. Breaking Down Your Home Loan EMI

A home loan EMI (Equated Monthly Installment) is divided into two parts: principal and interest. Shreya explains that in the initial years, the majority of your EMI payment goes toward the interest. For instance, during the first year, about 89% of your EMI covers interest alone. This gradually decreases but remains high, with 84% going toward interest by the 5th year and 75% by the 10th year. This means that for nearly half the loan tenure, most of your EMI is directed at paying interest rather than reducing your principal.

2. Why Prepaying Can Be a Game-Changer

Shreya's advice for anyone receiving a bonus or extra income is simple: consider prepaying your home loan instead of spending it impulsively. By putting extra funds toward your loan principal early on, you can significantly reduce the total interest paid and shorten the loan term.

3. The Impact of Prepaying ₹3 Lakhs at Key Intervals

For example, on a ₹50 lakh home loan at a 9% interest rate over 25 years, you'd pay back approximately ₹1.26 crore. But if you make a prepayment of ₹3 lakh in the 3rd, 6th, and 9th years, your loan duration reduces to 17 years, and you save around ₹29 lakh in interest. Shreya illustrates how small but consistent prepayments can lead to massive savings over time.

4. Good News: No Prepayment Penalties

Thanks to the RBI's regulations, home loans with floating interest rates no longer carry prepayment penalties. Shreya points out that this makes it even more favorable for borrowers to make extra payments whenever possible, as it directly benefits their long-term financial health without incurring additional costs.
      

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Shreya Jaiswal's insights reveal that managing a home loan effectively involves understanding its structure and making strategic prepayments. By directing bonuses or unexpected income toward prepayments, homeowners can reduce both the term and interest burden of their loans. So next time you get that bonus, consider making it work for you by cutting down your home loan!