Refinancing Your LIC HFL Loan: Understanding Principal and Interest Distribution
When considering the refinancing of your loan with LIC HFL to keep the same EMI amount while reducing the loan tenure, it's essential to understand how the distribution of principal and interest changes over time. This article delves into the specifics of how refinancing affects your loan structure and offers insights to help you make an informed decision.
EMI Calculation and Principal and Interest Ratio
The calculation of your Equated Monthly Installment (EMI) is based on the loan amount, interest rate, and tenure. When you shorten the loan tenure while maintaining the same EMI, the total interest payable over the life of the loan decreases.
Initially, in the early stages of a loan, a larger portion of your EMI goes toward interest rather than principal. As you repay more of the principal, the interest calculated on the remaining principal decreases, which causes the principal portion of the EMI to increase. This dynamic changes as the loan progresses.
Impact on Principal and Interest Ratio After Refinancing
When you refinance and reduce the tenure, the new loan structure alters the amortization schedule. This means that in the early months of the new loan, you might pay a slightly higher portion of your EMI towards the principal compared to the old schedule. As the loan progresses, the reverse happens, with more of the EMI going towards interest as the principal is reduced.
Total Interest Payment
Since you are shortening the loan tenure while keeping the same EMI, you will generally pay less total interest over the life of the loan compared to the previous structure. This is because the principal amount is reduced faster, leading to lower interest charges overall. The total interest paid over the life of the loan will decrease, and the loan will be paid off faster.
Conclusion
Yes, there will be a change in the principal and interest ratio after refinancing. You will likely pay more towards the principal and less towards interest over time compared to the original loan structure.
If you are looking for specific calculations based on your loan amount, interest rate, and new tenure, feel free to provide those details!
Once you have refinance your loan, the interest rate is decreased correspondingly, and the tenure is reduced. For example, if your loan was previously set to close on June 2032 with a 9.2 ROI and was refinanced to close on Jan 2029 with a 7.95 ROI, you will enjoy a reduction of approximately 3 years in the tenure. Since your EMI depends on your rate of interest, a lower interest rate translates into paying less interest on your loan and more towards the principal.
Key Points to Remember:
Refinancing reduces the total interest paid. The initial ratio of EMI towards interest and principal changes over time. The loan is paid off faster with the same EMI amount and reduced tenure. A lower interest rate translates into more principal payments and less interest payments.By understanding these changes, you can make the most informed decision regarding your financial planning and loan repayment strategy.