Wednesday, December 26, 2012

How to manage EMI Effectively?

EMI refers to Equated Monthly Installments a key term in all loan products which stands for the loan repayments to the bank. The EMI is calculated by taking the loan amount, Interest Rate and repayment tenure into consideration. All the Banks and Financial Institutions do the calculations in the same manner so the amount will not change from one bank to other. All the EMI are calculated on diminishing rate which is mandatory in Home Loans.

Banks provide the facility of repaying the loan in Equated Monthly Installments which is a combination of Principal and Interest Components. The EMI will have Interest Component higher in the initial stage of tenure and as the tenure goes on the Principal component increases and the interest component decreases. 

The EMI can be increased if the income of the applicant increases. But the cant be reduced once it is fixed. If the customer wants to make any part-payments during the repayment tenure then the paid amount will be directly deducted from the outstanding principle and tenure will be re-scheduled according to the latest outstanding amount by keeping the EMI fixed at the same amount. This provision is available only for the Home loan customers. 

Banks reserves the right to reschedule the loan tenure if there is any change in the home loan interest rates on the Loan that the customer has availed. If there is any change then banks will increase the tenure first and if the tenure is crossing 300 months then banks increase the EMI as there is a cap on repayment tenure for 300 months. If the Interest rate reduces then banks decrease the repayment tenure but not the EMI. Customers need to personally request the bank to reduce the EMI component and the decision is at the sole discretion of the bank. All the Home loan products attract Tax Exemption under section 80© of Income Tax Act.


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