How good is new home loan benefit?

As we  have seen in previous post how first time home buyers (of a property whose value does not exceed Rs, 40 lakh) availing a home loan up to Rs. 25 lakh shall be entitled to a deduction of additional 1 lakh Rs, we shall try to analyze its worthiness here.

Let me again clarify that this benefit shall only be available to those first time buyers who shall be availing home loans on 1/1/2013 and onwards.

State bank of India is presently offering home loans at an interest rate of 9.95 % per annum for loan-amounts up to Rs. 30 lakh.

Let us see how Mr. Khanna availing a loan of Rs. 25 lakh for a tenure of 20 years shall be benefitted.

For the aforesaid loan Mr. Khanna shall have to pay an EMI (equated monthly instalment) of Rs. 24,043. 

Every EMI has 2 components- interest component and principal component.

With passing years interest component keeps on reducing while principal component increases.

Thus every year Mr. Khanna shall be paying Rs. 2,88,516 toward the home loan.

Mr. Khanna pays annual interest amount as per the following table.

Morale of the story is - How this benefit loses its lucurativeness after 4 years.

In the 10th year Mr. Khanna shall be able to avail a deduction of Rs. 1,86,961 only.

What is worth mentioning is what deduction Mr. Khanna shall get in 20 th year ?

It shall be modest Rs. 14,966 only.