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17 MAY, 2021
A home loan is a long-term financial commitment that can stretch up to a period of 20 years. Timely repayment of home loan can help you avoid a debt trap and keep your credit score intact. Since a home loan is a secured loan, wherein the purchased property acts as collateral, it becomes all the more important to repay the loan amount on time. Moreover, there are certain measures that can help you to repay the home loan faster. Below, we will elaborate some strategies to pay off home loan faster. Read on to learn about the same:
Strategies to Pay-Off Home Loan Faster
Increase your monthly instalments
One of the finest ways to reduce the tenure of a home loan is to increase the Equal Monthly Instalments (EMIs). Therefore, as your monthly income rises, ensure to increase the EMIs to clear off the home loan sooner. This will also help you save on the interest pay-out in the long run.
Make a partial prepayment
You can use annual bonuses, increments and any other additional income to make a part prepayment of your home loan. This will bring down the outstanding amount, reduce the interest pay-out, and shorten your home loan tenure. When applying for a loan, ensure to check with the lender whether they offer the partial-prepayment facility and what are its charges. Partial-prepayment will allow you to pay a lump sum amount to bring down the outstanding loan amount. This, in turn, will help reduce your total interest paid towards home loan. Additionally, make sure to calculate the difference between the prepayment charges, and future interest saved before making a partial prepayment. It is advisable to prepay the home loan only if the amount saved is high.
Shorter Loan Tenure
By availing a short-term home loan, you can pay off your loan faster. However, you must note that a short-term home loan will have a higher EMI as compared to loan-term home loan. Thus, make sure to evaluate your repayment capacity carefully before opting for a short-term home loan. You can make use an online home loan EMI calculator to get an estimate your EMIs.
Opt for a home loan balance transfer
The home loan balance transfer facility allows the borrowers to transfer their outstanding loan amount a lower interest rate. Therefore, if your credit score has improved since the time of availing a home loan, you can consider switching the home loan to a different lender who offers a lower interest rate. This can reduce your home loan EMIs significantly. However, if you are looking forward to paying off home loan early, it’s advisable to keep the home loan EMI constant and reduce the loan tenure.
Make higher down payment
The less you borrow, the lower is the repayment burden. Usually the down payment for a home can be up to 25% of the property’s value. However, if you have enough savings, it’s advisable to make a higher down payment and apply for a lower loan amount. This will reduce the EMIs as well as the overall interest. Moreover, you can clear off your home loan sooner.
Make use of tax exemptions
Under Section 80C of the Income Tax Act, 1961, you can claim deduction of up to Rs 1.5 lakh on the principal amount paid towards home loan repayment in a financial year. Additionally, under Section 24(b), you can claim deduction of up to Rs 2 lakh on the interest paid in a financial year. These tax benefits can help reduce the overall cost of borrowing, thus, helping you close/pay off the loan faster.
Now that you are aware of how to pay off home loan faster, ensure to make the most of it while repaying the home loan. Plan your monthly budget keeping the home loan EMI in mind. Lastly, make sure to keep a track of the EMI payments. Do not miss-out on paying EMIs as it can attract penalty charges as well as affect your credit score significantly.
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