Higher interest outgo. Today the same loan runs on an interest rate of 12.75 per cent. Over the last four years, the bulk of what he has been repaying as EMI is interest.
So, he still has an outstanding principal of Rs 27 lakh to repay and his EMI is up to Rs 29,774. This is what the situation is: a loan, originally for 240 months with an EMI of Rs 24,628, gets rolled into one for 319 months with an EMI of Rs 29,774.
The horror story does not end there. On the outstanding principal of Rs 27 lakh Rs 2.7 million) now, the total interest burden for 26.61 years is a whopping Rs 68 lakh (Rs 6.8 million), and the total cost of the Rs 30-lakh (Rs 3 million) home has become Rs 98 lakh (Rs 9.8 million), including Rs 300,000 that has already been paid.
Higher total cost. Every time the interest rate goes up by 0.25 percentage points, the repayment period gets longer.
For instance, on a loan at 9 per cent, if the original repayment tenure was 240 months, a 0.25 percentage point increase after, say, a year lengthens the remaining payback period by 11 months to 239 months.
A one percentage point increase prolongs the tenure by 60 months, taking the total tenure to about 288 months (see With every hike). With the loan amount constant, more the number of EMIs you pay, the higher the interest cost, and, therefore, the total cost of your home.
Image: A family in Bhopal | Photograph: Vivek Pateria/AFP/Getty Images
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