Working of Home Loan

Understanding your home loan EMI on its own will actually tell you how your home loan works. For any person who takes a loan, it is really important to understand the breakup of their EMI payments. EMI else known as the Equated Monthly options is an amount set on a monthly basis which goes on a set monthly date. There are three main breakups of the EMI

The Principal amount– This is the amount which has been taken by the individual during the deal of the house. It is based on this amount that the repayment options are decided.

The interest rate – The rate of interest, or interest rate is the rate at which the principle amount is given. This is another essential factor that determines the monthly payments. There are two kinds of interest rates.

The fixed interest – This remains the same throughout the loan. The only time this can be changed is when you opt for a repayment and consolidation option or a new loan. The one benefit of such an interest rate is that even if the interest rate in the market goes up, it will not affect you.

Home Loan

The variable or floating rate – This kind of interest is not fixed and changes as per the market. While this is a good choice when the interest rates go down however it can be really tedious when the interest rate goes up.

Computation – This is the method that is used to calculate the monthly home loan EMI. There are various methods that can be adopted to make things a lot simpler. The first being paying only an interest amount for a speculated time frame in case you cannot afford to pay the complete EMI or the second being that you pay an additional amount only towards the principle. This can be done at any point of time and actually helps to clear the loan amount faster. If you have a specific lock in period, you cannot foreclose your loan until that is done.

The tenure of the loan

This determines the time that a person would take to repay the entire amount that is borrowed. If the loan tenure is long, it beneficial in a way since it reduces the stress of repayment however you do end up paying a certain additional amount above the borrowed amount. On the hand if the tenure is short, it can be a strain but then you end up paying the loan a lot faster.

Conclusion

Understanding how your loan works is purely based on understanding your home loan EMI. This gives you a fair idea on how your repayment option works. You can also get to know the different ways that you can go ahead and reduce the financial stress that you have while paying the loan back. TMI’s are very crucial and is designed to ease a person’s stress. Having a home loan is a responsibility that has to be given back regularly or else you can end up losing everything.

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