40-year Home Loan: You will end up paying Rs 2 crore on a Rs 50 lakh loan! Avoid it

Some housing finance companies have started offering home loans with a maximum tenure of up to 40 years. Should you take it? Ideally, you should avoid taking very long-term home loans. Read on to find out the reason and sample calculations to understand.

Taking a very-long term home loan can reduce your home loan EMI burden initially. But in the long run, the overall cost of a very long-term home loan will be very high. Let’s understand this with an example.

As of now, various lenders are offering home loans at around 8.5% to 10.25% annual interest rates. Suppose you take a Rs 50 lakh home loan at 9.5%, let’s see what will be the EMI and the total amount you will end up paying to the lender during the tenure of the loan.

Rs 50 lakh home loan at 9.5% interest rate for 10 years

For a Rs 50 lakh loan at 9.5% for 10 years, the monthly EMI will be approx Rs 64,699. The total amount you will pay to the bank, including the principal+interest, in 10 years will be approx Rs 77.6 lakh.

Rs 50 lakh home loan at 9.5% interest rate for 15 years

In the case of a Rs 50 lakh loan at 9.5% for 15 years, the monthly EMI will be approx Rs 52,211. The total amount you will pay to the bank, including the principal+interest, in 15 years will be approx Rs 94 lakh.

Rs 50 lakh home loan at 9.5% interest rate for 20 years

In the case of a Rs 50 lakh loan at 9.5% for 20 years, the monthly EMI will be approx Rs 46,607. The total amount you will pay to the bank, including the principal+interest, in 20 years will be approx Rs 1.1 crore.

Rs 50 lakh home loan at 9.5% interest rate for 25 years

For Rs 50 lakh loan at 9.5% for 25 years, the monthly EMI will be approx Rs 43,685. The total amount you will pay to the bank, including the principal+interest, in 25 years will be approx Rs 1.3 crore.

Rs 50 lakh home loan at 9.5% interest rate for 30 years

For a Rs 50 lakh loan at 9.5% for 30 years, the monthly EMI will be approx Rs 42,043. The total amount you will pay to the bank, including the principal+interest, in 30 years will be approx Rs 1.51 crore.

Also Read: The true cost of buying a home

Rs 50 lakh home loan at 9.5% interest rate for 35 years

In the case of a Rs 50 lakh loan at 9.5% for 35 years, the monthly EMI will be approx Rs 41,081. The total amount you will pay to the bank, including the principal+interest, in 35 years will be approx Rs 1.72 crore.

Rs 50 lakh home loan at 9.5% interest rate for 40 years

In the case of a Rs 50 lakh loan at 9.5% for 40 years, the monthly EMI will be approx Rs 40,503. The total amount you will pay to the bank, including the principal+interest, in 40 years will be approx Rs 1.94 crore. Along with other associated costs with home loans, this may well be over Rs 2 crore.

What to do?

Very long-term home loan EMIs may be helpful for homebuyers who want to keep their EMIs low initially. However, such homebuyers should try to prepay the principal amount as soon as possible to reduce the total burden. Alternatively, you can try to prepay a fixed amount regularly to reduce your total interest outgo and loan tenure. (Read more details about prepayment here).

According to Adhil Shetty, CEO of BankBazaar.com, by paying just 5% of the loan balance every year, a borrower can close a 20-year home loan in just 12 years.