Can you ever repay your home loan?

It may sound ridiculous as you are regularly paying your EMIs and you think that it is going toward the interest due and reducing your principal loan amount every month. But things may not be that easy in all cases. Let me share my own experience about this.

I have transferred my home loan from a private bank to a nationalized bank just more than three years ago. The interest rate was very lucrative, 8% for the first year, 9% for the next two and then at the market rate (floating rate). They named it “teaser rate” for new borrowers. So I switched over to the nationalized bank with paying some pre payment penalty to the previous one ( the prepayment penalty was there at that time). My loan amount was Rs 7,12,000 and EMI fixed at Rs 5955 for a 20 year term. It was provided in the agreement that Bank can increase the EMI as and when required. Everything was smooth and my bank never made any communication, neither altered the EMI.

Just about a week ago I enabled netbanking for my savings account maintained with the same nationalized bank and amazed to see that the loan A/C is also tagged there. On analyzing the loan A/C I surprised to see the present rate of interest as 12.5% and monthly interest due is about Rs 7200, while I am paying EMI @Rs 5955. That means a deficit of over Rs 1200 per month ! And it is being added to my outstanding loan amount every month !! Instead of being reduced, the loan amount is swelling every month and if things go like this, after a few years the outstanding amount is going to be added a few lakh rupees more !!! It was simply too hard to digest for me.

So, I advise you to check your home loan A/C right now and if you are in the same boat, explore any of these options, A) Increase your EMI substantially so that there may be at least some surplus than your monthly due interest and B) consider part pre payment (There is no pre payment penalty now), or if possible exercise the both options before it is too late, otherwise you may leave a “Home with horror” for your successor.

If even a few of the borrowers get benefited from this experience which I gathered , I shall be obliged.

Thank you for patient reading, waiting for your response.