13 Jun Pinch of interest
The % of interest paid for a 20 years housing loan over the period.
1) By the 5th year 35% interest is paid,
2) By the 10th yr 66% interest is paid
3) By the 12th year 75% interest is paid.
For a 1 cr loan at 10% interest is not 10 lac which is the interest amount but a whopping Rs 1.7 cr.
After 7th year paying off the loan is an exercise in futility.
Most people do so; pre-pay and smile to themselves even whilst the bankers laugh all the way to their bank and banks.
Banks make a killing out of this tendency of pre-paying of loans.
As an investor invest in bank stocks till such time people are ignorant and take long term loans but as a borrower never ppre-pay after 7 years have passed.
The irony is there was a time when banks charged prepayment fee.
This is business of the Banks.
Ethics Gaya tel Lene
Another interesting aspect is that for a 1 cr loan at 10% the interest isn’t Rs 10 lac but a whopping Rs 1.7 cr which is 170%.