EMI of your loan is decided by these 3 factors

Published: April 2, 2019 1:04:41 AM

In some cases, the bank issues a ‘no dues’ certificate along with advice for return of original papers.

However upon receipt of statement, I see the bank, apart from EMI, levied interest on EMI which appears to be not proper.

By Chaitali Dutta

No restrictions on prepayment of home loan

I want to prepay some amount of home loan this year. Is there any restric-tion on the amount and the periodicity that one can prepay in a year?
– Akshay Sarin

Usually, there is no restriction on amount or periodicity of prepayment of a home loan taken on a floating interest rate. However, there could be some clauses in your arrangement letter which puts a cap on this. Please go through your letter in detail to understand the exact status.

In the initial years, my bank deducts most of my EMI in repayment of interest and very negligible amount for principal repayment. Why is it so and how can that be rectified?
—Bhushan

The EMI is decided by three factors: the loan amount, the tenure of the loan and the interest rate. The total dues to the bank are the loan amount plus the interest on the daily reducing balance. This total due is divided by the number of months to arrive at the EMI. So, each EMI (E) = Interest (I) + Principal (P). In the initial stages, the loan outstanding is large; the interest is therefore higher. E being fixed, P has to be smaller. As you pay the principal amount over the years, the I component becomes smaller. In the later period, your P component becomes larger. The payment of bank loans globally follows the rule of equated monthly payments for mortgages. This cannot be changed.

I made some purchases using my credit card and opted for flexi pay through EMI. I understand that EMI is calculated taking into account the outstanding bill amount along with interest for duration of EMI. However upon receipt of statement, I see the bank, apart from EMI, levied interest on EMI which appears to be not proper. What is your view on this?

—Partho Dam Kanunjna

Your understanding is correct. The EMI facility is basically extended loan from the card issuing company. In case there is an interest component on the EMI, please check if the EMI/ total payment due, was delayed for that period.

How long does the bank take to handover the property papers after paying off the entire loan amount?
—Umesh Sarangi

It should be same day if prepayment notice is given in advance. In some cases, the bank issues a ‘no dues’ certificate along with advice for return of original papers. All this should not exceed seven days.

The writer is founder, AZUKE Personal Finance Advisory (www.azukefinance.com). Send your queries to
fepersonalfinance@expressindia.com

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