The home loan example
According to Gangwal, Vishal had taken a Rs 50 lakh home loan for a tenure of 25 years at an interest rate of 8.5%, with a monthly EMI of around Rs 40,200. Gangwal pointed out that, like most borrowers, Vishal discovered that the initial years of repayment were heavily skewed towards interest rather than principal.
In the first five years, the borrower paid around Rs 24 lakh through EMIs. However, only about Rs 5.5 lakh went towards reducing the principal, while nearly Rs 18.5 lakh was paid as interest. This is because home loans typically follow an amortisation schedule where interest forms the largest portion of the EMI during the early years.
The one change that made a big difference
Instead of increasing his regular monthly EMI, Vishal adopted one simple habit. Gangwal explained that he paid one additional EMI of Rs 40,200 every year. This was a one-time annual payment, while his monthly EMI remained exactly the same. That single extra payment produced substantial long-term savings.
Gangwal explained that this simple annual payment helped reduce the loan tenure by around 4.5 years. It also lowered the total interest burden by approximately Rs 13 lakh to Rs 14 lakh, allowing the loan to be fully repaid in nearly 20.5 years instead of the original 25-year period.
Why does paying one extra EMI work?
Gangwal explained that the additional EMI was used entirely to reduce the loan principal. Since interest on a home loan is calculated on the outstanding principal, lowering the principal earlier reduces the interest charged in the following months and years.He noted that this creates a compounding benefit in the borrower’s favour by reducing the interest base early and breaking the cycle of interest accumulation.
A small habit with long-term benefits
Summing up the example, Gangwal described the strategy as a small habit with a big impact. His post suggests that borrowers who can comfortably set aside the equivalent of one EMI every year may significantly reduce both their repayment period and the total interest paid over the life of the loan, without making any changes to their regular monthly EMI schedule.
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