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When buying a house with a home loan, the biggest fear is the monthly EMI payments. Initially, everything seems fine. You have a job, the salary is coming in, and the EMI is being deducted. But as the years go by, you realize that the amount of interest you're paying to the bank could have bought you another house. However, with a little smart planning, you can not only lighten the burden of your home loan but also save lakhs of rupees.

Why do EMIs feel so heavy?
When you take out a home loan, a large portion of the EMI in the initial years goes towards interest. The principal amount reduces very slowly. This is why, if you handle the loan smartly from the beginning, you can significantly reduce the total interest paid.

Let's understand with an example:

Suppose you take a home loan of ₹50 lakhs at an 8.5% interest rate. The loan tenure is 20 years. Your EMI would be approximately ₹43,000. But over 20 years, you will pay the bank almost ₹1 crore, meaning about ₹50 lakhs is just interest.

Now, understand the trick:
If you make a prepayment of ₹5 lakhs (i.e., just 10%) within the first 2-3 years of the loan, and instead of reducing the EMI, you reduce the loan tenure, you can save up to ₹18 lakhs in interest.

Reduce EMI or reduce tenure?
Banks usually give you two options: reduce the EMI or finish the loan early. It's always wiser to reduce the tenure. The EMI remains the same, but you finish the loan several years earlier, saving on interest.

How does prepayment offer such a big advantage?
Prepayment reduces the principal amount. The interest is calculated on a smaller amount, and the interest for the coming years automatically decreases. There is no penalty for prepayment on floating-rate home loans. You can make prepayments whenever you receive a bonus, salary hike, or any extra income. Like an SIP (Systematic Investment Plan), this also makes your financial life easier. 

Most Effective Tricks to Reduce Your Home Loan
Method: What to do, Benefit
Prepayment: Pay off a portion of the loan early. Interest reduces faster
Shorter Tenure    Choose 15-20 years, not 25 years, Lower total interest

    Increase EMI when your income increases. The loan ends sooner
Loan Transfer    Switch banks if you get a lower interest rate. Both EMI and interest reduce

Higher Down Payment: Pay more than 20%    Loan amount decreases
It's not necessary to pay a very large amount every time. If you pay an extra EMI every year or use your tax refund or bonus for prepayment, the final years of your loan will be much easier.

Conclusion
Blindly managing your home loan after taking it out is the biggest mistake. A little planning and timely decisions can reduce your EMI and save you millions in interest.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.