POSTED BY January 25, 2015 6:21 pm COMMENTS (4)

ONHi,

I read your article of ” How EMI’s Principle and Interest breakup is done”. The article is really good and I got lot of input by that. Still have some doubts Pl clarify.

1) Am taking a Home loan of Rs.7lacs with the tenure of 5 years on r.o.interest 10.15% – is that profit with 5 years tenure or can I go for 10 years?

2)If I go for 5 years tenure, my monthly emi amount will be Rs.14924 (As per my understanding by the article, if go for less tenure the more principle amount will deduct on the emi payments – Pl correct me if am wrong).

If done any part pre payment on capital, then the principle amount and the pertaining charges will be get reduce correct? and loan will get close quickly

3)The emi amount (14924rs.)is fixed or changeable accordingly to prepart payment.(or only variation of principle and interst amount only differs with in that amount?)

4) what is floating interest and fixed interest? which is benefit?

Pl clarify,

Thanks

Raghu

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You can choose to do that, but here the time frame you invest in mutual funds is a major factor. Mutual funds give better returns in long term. keeping invested for 10 years is anytime better than 5 years.

Going by option 2 would have one more advantage. In case after 2 or 3 years, you need money urgently for some emergency you can take out money from the equity fund (no tax) but same cant be done with the money once paid as EMI.

Hi Sirish HK

As you have mentioned below are 2 options:

OPTION 1)

If you opt fro 5 year term you pay an EMI of 14,924, Interest paid 1,95,479 Total Payment- 895478.

OPTION 2 ) If you opt for 10 year term you pay Emi of 9308, Total interest paid 4,17054, Total payment – 111705.

If I choose OPTION 1 and completed my home loan in 5 yrs and after that entire EMI amt (RS. 14924) invested in MF (SIP of 14924 monthly) for 5 years, then obviously returns would be high.

I will choose OPTION 1 but in my mind will assume that EMI would be for 10 years out of which 5 years for home loan and next 5 years as a MF investment.

Your suggestion (s) pls.

Thanks.

Hi, before answering your query, If i were to know your Income and expenses, i can give you a clear picture. However will try to give a reasonable answer.

If you opt fro 5 year term you pay an EMI of 14,924, Interest paid 1,95,479 Total Payment- 895478.

If you opt for 10 year term you pay Emi of 9308, Total interest paid 4,17054, Total payment – 111705.

The difference in EMI will be 5616.

I would chose to go for 10 yer term, The logic is my initial monthly commitment will come down, I will start an sip in equity and debt Mutual fund for the differential amount. One can expect a decent 12% return in this combination , More over returns are tax free in Equity scheme. if markets perform well we can still get a higher return. On that basis Rs 5600 invested for 120 months can turn to 12,54000, @ 12%.

The differential interest is (4,17054 – 1,95,479) = 221575, So net of net i will be in profit of 10 lakhs when i complete my home loan after 10 years. (Remember if you dont start an SIP the idea can be a fluke) and you end up paying more interest.

Other important points : Home loans are the most cheapest loans.

They offer you tax exemption on Capital and interest payments.

As they are available only when you build an home or alter it, make the best use of them.

Wishing you good luck.

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