In Feb 2019, I took a home loan of 30 lakhs at an interest rate of 8.95% for a period of 25 years (300 months) from HDFC.
This meant I would end up paying a whopping 44 lakhs as interest on the 30 lakh loan. That's 74 lakhs, a staggering amount that a lot of borrowers do not take into account even while applying for the loan. The meagre tax break on home loan doesn't even begin to compensate this hefty interest outgo, despite annualized.
Anyway, I decided to prepay and fast.
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The initial EMI was roughly 25,000, which is also the base rate (meaning I can increase the EMI but not reduce it below this figure). I had been paying only the EMI till Nov 2020, when I researched and found out that HDFC's running rate at that time was a shallow 6.95%.
Criminally, HDFC had only lowered my rate to 8.30%. It is only after I requested that they actioned the running rate on my account. I paid a one-time fee of 2.950 for the rate change.
In Nov 2020, before the rate was slashed, here's how the loan figures looked like:
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Thanks to my own research, I began prepaying and continuously applying to reduce the interest rate. This is what transpired from Nov 2020 till the end of 2022:
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Now for the 2023 part, the main point of this post. This year I did not make many prepayments, but I lowered my interest rate 4 times. This helped me stay within my comfort borrowing area because even though NHB (RBI's equivalent for HDFC before the merger) began raising the rates like it was the end of the world, my loan account stayed safe.
Here's what's happened between Jan-Dec 2023:
This whole exercise was to show how tracing your loan book using an amortization spreadsheet (see below) is critical to help you optimize your borrowing. So many of us take a loan and worry about paying timely EMIs. Even when we have surplus money, it's rarely earmarked towards loan prepayment. I'm not even getting into the prepayment vs equity investing debate because if you take a returns-based calculation, on theory, it may make sense to invest instead. My aim here was to reduce the overall interest outgo.
My amortization spreadsheet that I track monthly
This exercise is for those folks who want to prepay, have the resources to prepay, and ultimately want to reduce debt as soon as possible. I plan to close down this loan by end of December 2024, which may or may not be possible. But I feel better than I was in December 2022 because:
Let RBI hike the rate as much as they want, but the fact that even a 10% rate won't take my debt dynamic beyond the staggering figures that appeared when I took the loan is what gives me a sound sleep his year end.
I'll be coming back in Dec 2024 to show what has changed and if I was able to close my loan, so that I can go back to baser instincts and get another loan.
---
May people have asked for it, so here's the amortization spreadsheet: https://docs.google.com/spreadsheets/d/1HRL8uqNxS7uePpPmJR3Zshv6_rGyWLspZ464I3zkCkY/edit#gid=1
I'm not the owner. I happened to find this in this sub itself.
This meant I would end up paying a whopping 44 lakhs as interest on the 30 lakh loan. That's 74 lakhs, a staggering amount that a lot of borrowers do not take into account even while applying for the loan. The meagre tax break on home loan doesn't even begin to compensate this hefty interest outgo, despite annualized.
Anyway, I decided to prepay and fast.
---
The initial EMI was roughly 25,000, which is also the base rate (meaning I can increase the EMI but not reduce it below this figure). I had been paying only the EMI till Nov 2020, when I researched and found out that HDFC's running rate at that time was a shallow 6.95%.
Criminally, HDFC had only lowered my rate to 8.30%. It is only after I requested that they actioned the running rate on my account. I paid a one-time fee of 2.950 for the rate change.
In Nov 2020, before the rate was slashed, here's how the loan figures looked like:
- Principal outstanding: 29.2 lakhs
- Total EMI amount paid: 5.5 lakhs
- Total interest component: 4.7 lakhs
- Total principal component: 80,000
---
Thanks to my own research, I began prepaying and continuously applying to reduce the interest rate. This is what transpired from Nov 2020 till the end of 2022:
- Total prepaid amount: 8 lakhs (including the PMAY subsidy of roughly 2.7 lakhs)
- Rate was back to 8.50% now
- Total rate reduction fee paid to HDFC: 4,500
- Principal outstanding: 16 lakhs
- Total EMI amount paid: 16.8 lakhs (including prepayments)
- Total interest component: 3.5 lakhs
- Total principal component: 13.2 lakhs
- New adjusted EMI: 44,000
---
Now for the 2023 part, the main point of this post. This year I did not make many prepayments, but I lowered my interest rate 4 times. This helped me stay within my comfort borrowing area because even though NHB (RBI's equivalent for HDFC before the merger) began raising the rates like it was the end of the world, my loan account stayed safe.
Here's what's happened between Jan-Dec 2023:
- Total prepaid amount: 1 lakh
- Rate reduced from 8.5% to 8.35% (across 4 times; partly possible due to 750+ CIBIL)
- Total rate reduction fee paid to HDFC: 2,360
- Total EMI amount paid: 5.9 lakhs
- Total interest component: 1.1 lakhs
- Total principal component: 4.7 lakhs
- Principal outstanding: 11 lakhs
- New adjusted EMI: 38,500 (because after you have reduced a rate a specific number of times with HDFC, you cannot reduce your term. Instead, you must reduce your EMI)
This whole exercise was to show how tracing your loan book using an amortization spreadsheet (see below) is critical to help you optimize your borrowing. So many of us take a loan and worry about paying timely EMIs. Even when we have surplus money, it's rarely earmarked towards loan prepayment. I'm not even getting into the prepayment vs equity investing debate because if you take a returns-based calculation, on theory, it may make sense to invest instead. My aim here was to reduce the overall interest outgo.
My amortization spreadsheet that I track monthly
This exercise is for those folks who want to prepay, have the resources to prepay, and ultimately want to reduce debt as soon as possible. I plan to close down this loan by end of December 2024, which may or may not be possible. But I feel better than I was in December 2022 because:
- Total loan taken: 30 lakhs
- Total EMI amount paid: 28.6 lakhs
- Total interest component: 9.5 lakhs
- Total principal component: 19 lakhs
- Principal outstanding: 11 lakhs
- Total interest component forecast: 1.3 lakhs
Let RBI hike the rate as much as they want, but the fact that even a 10% rate won't take my debt dynamic beyond the staggering figures that appeared when I took the loan is what gives me a sound sleep his year end.
I'll be coming back in Dec 2024 to show what has changed and if I was able to close my loan, so that I can go back to baser instincts and get another loan.
---
May people have asked for it, so here's the amortization spreadsheet: https://docs.google.com/spreadsheets/d/1HRL8uqNxS7uePpPmJR3Zshv6_rGyWLspZ464I3zkCkY/edit#gid=1
I'm not the owner. I happened to find this in this sub itself.