A home loan can help you achieve your dream of buying or building your own house. However, it is also a serious financial commitment that you take on. To repay it on time and as per the schedule set by the lender, you need to have long-term financial discipline. This is because the repayment tenure of a home loan can go up to 30 years or so.
However, if that seems like a long time for you to bear the burden of debt, there are many ways in which you can shorten the repayment tenure. If you want to know more about how to repay your home loan smartly and in a shorter time than originally planned, here are some tips to repay your home loan faster.
Home loans can carry a fixed or a floating interest rate. Fixed rates remain unchanged throughout the repayment tenure, while floating rates may change every quarter, based on the RBI’s policy. So, if the RBI lowers the repo rate, floating home loan rates will also fall accordingly.
By comparing your options, you can choose a home loan that offers the lowest interest rate. Also, by opting for a floating interest rate, you can benefit from lower interest costs when the repo rates fall. All this helps you save more money in the long run, and you can use the surplus funds to repay your home loan faster.
This is one of the easiest tips to pay off your home loan faster. A shorter repayment tenure may increase your monthly EMIs. However, it will also help you in the long run, because you can close your home loan more quickly. In addition to this, a shorter repayment tenure also reduces the overall interest that you pay on your home loan, thus helping you save lakhs of rupees on interest.
For example, say you take a home loan of Rs. 20 Lakhs at an interest rate of 7% per annum —
Repayment Tenure of 10 Years: Here, your monthly EMI comes up to Rs. 23,222. And the total amount of interest you will pay during this 10-year period comes up to Rs. 7,86,603.
Repayment Tenure of 20 Years: In this case, your monthly EMIs will be just Rs. 15,506. But the total amount of interest you pay over the 2o-year period will be Rs. 17,21,435.
See how much difference a shorter repayment tenure can make? Although your EMIs are a little higher, you pay around Rs. 10 lakh less as interest by choosing a shorter tenure in the above example. So, if you can afford to pay higher EMIs, it is better to choose a shorter tenure and close your loan sooner.
Typically, home loan borrowers pay 20% of the value of the property as an upfront payment. This means the amount borrowed will be around 80% of the property value. But you don’t always have to limit the down payment to just 20%. If you can afford it, make a higher down payment, so you can borrow a lower amount.
For instance, say you want to buy a house property worth Rs. 50 Lakhs. In that case, here is how the EMIs will vary based on the down payment you make.
20% Down Payment (Rs. 10 Lakhs): Here, you will have to borrow Rs. 40 Lakhs. Suppose you borrow this sum at 7% per annum for 20 years, your EMIs will be Rs. 31,012.
40% Down Payment (Rs. 20 Lakhs): In this case, you will only have to borrow Rs. 30 Lakhs. So, if your home loan interest rate is 7% and you choose to repay it over 20 years, your EMIs will only be Rs. 23,259.
Since you pay lower EMIs in the second scenario, you can save more each month and use those funds to partially prepay your loan over time.
A Home Loan Balance Transfer (HLBT) facility lets you transfer your home loan from your current lender to a different lender. You may do this to take advantage of lower interests offered by the new lender.
If you want to know how to repay your home loan smartly, consider the HLBT facility if your home loan rates are higher than the market rates. By switching to a lender who offers more competitive rates, you can pay lower EMIs and save more money. These funds can then be used to partially prepay the loan and reduce the remaining tenure.
This is one of the lesser known tips to close your home loan faster. The home loan interest rates you see online or in your bank’s brochure may not be set in stone. If you have an excellent credit score and a good, long-standing relationship with your lender, you can negotiate the rates further.
This will reduce the EMIs you have to pay over the long term and help you make partial prepayments whenever possible. And that, in turn, can help you pay off your debts sooner.
Home loans offer many tax benefits under different sections of the Income Tax Act, 1961. Section 80C lets you claim up to Rs. 1.5 Lakhs as a deduction, for the principal component repaid during a year. And section 24 lets you claim a deduction up to Rs. 2 Lakhs, for the interest component repaid.
Want to know how to repay your home loan smartly using these tax benefits? By availing these deductions, you can save a lot in taxes. And over the years, these savings can add up and help you prepay your loan, at least partially. This reduces the remaining repayment tenure.
This is another one of the many easy tips to repay your home loan faster. You can reduce the principal amount by either increasing the down payment, or by choosing a house property that is easier on your finances.
By borrowing a smaller amount, your EMIs will naturally be lower. This helps you redirect more funds to your savings account, thereby helping you make partial prepayments and close your loan sooner.
This technique is a prime example of how you can repay your home loan smartly. Home loans typically have long repayment tenures, going up to 30 years or so. Over this period, your salary may no doubt see a raise.
You can use the increased income to pay off higher EMIs and foreclose or partly prepay your loan. For this, you need to opt for a home loan that allows you to increase your EMIs after a certain period.
Some lenders offer a home loan overdraft facility on your borrowing. In this facility, your home loan account is linked to a dedicated savings account. If you have any surplus funds, you can add the money to the linked savings account. This will be considered as a prepayment, thereby bringing down the outstanding balance on your home loan.
In case of any emergency, you can withdraw the funds in your account, thanks to the overdraft facility. Your home loan balance will temporarily increase accordingly. But if you don’t make any withdrawals, your outstanding will reduce over time and help you pay off the home loan faster.
If you receive any lump sum amount as a bonus at work or an inheritance, you can use the money to make a part-prepayment on your home loan. This reduces the overall principal outstanding, thereby reducing the interest too. In turn, it shortens the repayment tenure and helps you close your home loan online faster.
Missing or delaying your EMI payment will attract a penalty at the rate fixed by your lender. Over time, if you regularly delay your EMI payments, the financial burden will increase and may lead to further delays. Eventually, you will not be able to close your loan earlier than the original repayment schedule.
Delayed or missed payments also adversely affect your CIBIL score and make it harder for you to get loans later on.
These tips to pay off your home loan faster will help you reduce your overall portfolio debt within a much shorter period than you originally planned. To implement many of these tips, you need to have a home loan lending partner whose terms and conditions are flexible and borrower-friendly.
On Bajaj MARKETS, you can avail home loans that fit these criteria. With flexible repayment tenures up to 30 years and interest rates starting as low as 6.99% per annum, these home loans also come with no hidden charges. So, you can close off your loan faster than the original tenure without any extra charges.