Home Loan Part Payment – Difference

POSTED BY anoop das ON June 27, 2011 12:00 pm COMMENTS (10)

Home Loan Part Payment? I have heard that private sector banks do not reduce the part payment amount from the principal,but they just reduce the number of EMI\’s, Is this right, if so which banks are these?           Example: I pay a regular EMI of Rs.30000 and my outstanding principle is 25 lacs, now if i do a part payment of Rs.90000 some banks do not reduce it from the principle, but reduce 3 EMI\’s equal to 90000, please tell me which bank do this.

10 replies on this article “Home Loan Part Payment – Difference”

  1. Partha Sarathi Chattopadhyay says:

    I have taken a home loan Rs.35,000,00 from SBI.and i am paying EMI Rs. 43,400 for a period of 12 years. I want to repay 20,000,00.00 lakhs to reduce my EMI keeping the tenure same and my present outstanding is 29,93000.00 as I retired from service and 43,400.00 EMI is becoming difficult to repay. what will be my EMI after repayment of 20 lakhs? what are the procedures

    1. Its pretty simple to calculate, if the tenure is same then the EMI will come down proportionatly as your outstanding comes, a rough calculation tells me that new EMI will be Rs 14,400 , and if you increase it to 20,000 per month ,I guess the tenure will also come down to 3-4 yrs

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  3. Hari Bhaskar says:

    Hi Manish…
    i wish to make part payment of rs.50,000 to my sbi home loan account with outstanding as of now is 4,03,000. i took this home loan in 2007 and paying my emi promptly without any lapse. i am having onlinesbi account with the facility to transfer fund. my intention is to reduce the period of emi and maintain the monthly emi amount as is. how to instruct the bankers wihtout going to racpc in person. there is no response over phone either. what will happen if i transfer rs.50,000 to home loan account online today without any prior intimation to racpc or branch. i am confused. your early reply will be much useful as i understand i am losing interest component daily even after i am having rs.50000 rested in savings bank account for the past 20 days. please help resond at the earliest for which i will be very thankful to you. my emi is rs.4,664 for 20 years for a loan of rs.4,48,000 taken during dec 2006. emi deduction started during jan 2007. as of now the interest percentage showing is 12 percent. not sure whether they are charging the correct percentage from me….i am sure i asked for floating interest basis while borrowing loan from sbi during 2006.

  4. Mr. Das, If you pay a lumpsum amount, the interest componet in the next EMIs will reduce, and the principle componet will increase. If you wish to keep the EMI same, automativally your loan will be closed early. If you want to keep the tenure same, may be you have to discuss with loan officer and get the EMI rescheduled. Keep in mind longer the tenure you take more the interest you pay.

  5. ashal jauhari says:

    Dear Anoop Das, I think you have misunderstood the whole thing. When you part pay your home loan, You have 2 options –

    1. Reduce the EMI to complete the loan in normal term.
    2. Reduce the Term with original EMI as it is

    If you want to check the same, you may do the test on your PC itself. Here it is.

    Open Exl. sheet in your PC. click on new in file button. select loan amortization sheet from the menu.

    Put the nos. of your loan in the loan amort. sheet.

    Put the part payment figure in the month you want to prepay. Now you ‘ll notice the effect of prepayment that your total EMI months has been reduced from original to some 4-6-10-12 or 20 based upon your prepayment.

    Thanks

    Ashal

  6. Ajay says:

    Anoop – Suggest you read this (if you havent)

    https://www.jagoinvestor.com/2011/04/loan-amortization-emi.html

    Coming to the question of “private sector banks do not reduce the part payment amount from the principal,but they just reduce the number of EMI”
    The money has to be accounted for… isnt it? The money will be adjusted against your principal. That is why your Interest amount gets reduced on part prepayment.

    You can do one of the following
    1. Keep EMI amount constant and reduce tenure
    2. Keep tenure constant and reduce your EMI amount.

    The post (and the comments on the post) I mentioned above discusses this.

    1. anoop das says:

      Thank you for your valuable response.

      if the EMI’s are recalculated then it means that the part payment amount is reduced from the principle,but if only the tenure is reduced(by reducing number of equivalent EMI’s),then i think it means that the part paid amount is not reduced from the outstanding principle.

      could you please suggest some banks that reduce the part paid amount from the principle.

      1. Ajay says:

        Anoop –

        For the point that you put “if only the tenure is reduced(by reducing number of equivalent EMI’s),then i think it means that the part paid amount is not reduced from the outstanding principle.”

        This understanding is not correct. When you do a part prepayment the amount is always adjusted to the principal amount. The new EMI (keeping tenure constant) or new tenure (keeping EMI constant)

        If you have MS excel with you, I suggest that you get this template http://office.microsoft.com/en-us/templates/loan-amortization-schedule-TC001019777.aspx and try the numbers.

      2. ashal jauhari says:

        Dear Anoop Das, Everybody tried to answer you with the help of exl. sheet. Now I’m trying with a different view. Do the following calculations.

        1. Original term in months * EMI amount = ???
        2. Changed Term in months after part prepayment * EMI amount = ???

        The difference in the 2 above ‘ll be more than the amount prepaid by you. That’s your profit in terms of interest saved.

        Thanks

        Ashal

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