Few Tips You can Really Use to Pay off Your Home Loan Faster

Few Tips You can Really Use to Pay off Your Home Loan Faster

  • Prepay a home loan to bring down the tenor
  • Increase EMIs every year to curtail the loan tenor
  • Invest in instruments to generate surplus
  • Avoid prepayment charges with home loans on floating interest rate

A long-term commitment that requires you to pay regular EMIs for about 15-20 years or even more, a home loan helps you address one of the most essential life goals – buying your dream house. With a boom in housing finance companies and non-banking financial companies (NBFCs), home loans are easy to procure.

However, with financial commitments and liabilities undergoing a sea change during the home loan tenor, repaying the home loan through regular EMIs can be challenging. With these tips, you will be able to pay off your home loan faster without dipping into your savings and compromising on other essential life goals.

Make Prepayment

Prepayment not only reduces the principal amount and the EMIs, but also helps in closing the loan faster. Whether you are a salaried individual or self-employed, there are occasions when you receive surplus in form of bonuses or profits. Any surplus generated must be directed towards paying the outstanding loan amount to repay it faster.

Note that home loans procured on floating interest rates are devoid of prepayment penalties. Also, remember that during the initial loan tenor, a major component of the EMI goes towards the interest payment, with very little for the principal amount. Prepayment reduces the principal and the loan tenor, helping you repay your home loan faster.

For instance, if you have taken a home loan amounting to Rs.50 lakh for a period of 25 years at 10% interest, your EMI comes to Rs.45,435 per month. From your annual bonus, if you prepay Rs.1 lakh, you could reduce your tenor by almost 2 years.

Thus, prepayment is an excellent way to save on EMIs, curtail the home loan tenor and repay the loan faster. New-age home loans such as Bajaj Finserv Flexi Hybrid Loan doesn’t have any restriction on the repayment of the principal amount. With the help this housing loan EMI calculator, you can know the EMI you need to pay on the loan taken.

Also, with pre-approved offers from Bajaj Finserv on a gamut of loans including home loan, availing finance is quick and easy. It eliminates the lengthy process of availing loans. You can know your pre-approved offer within seconds by sharing a few basic details.

Increase the EMI by a certain percentage every year

Increasing the EMI amount is another prudent way to repay the home loan faster. Though increasing the EMI might strain your finances initially, it helps you in the long run by allowing you to repay your loan quickly. At the same time, if you are able to foreclose a loan quickly by paying a higher EMI, you save a lot more on the interest outgo.

For instance, in the above example, even a 5% hike in the EMIs paid every year will help you repay the loan in almost half the tenor (12 years, 11 months). This reduced tenor would also significantly bring down your interest outgo. Thus, it’s prudent to increase the EMI by a certain percentage every year to bring down the loan tenor and repay it faster.

Invest in financial instruments to generate surplus

To serve big-ticket liabilities like a home loan, it’s essential to make investments in financial instruments to generate a surplus that can be directed towards repaying the loan. For example, investments in equity-oriented mutual funds can help generate double-digit returns, the gains of which can be utilized towards repayment of a home loan.

Note that among all other assets, equities have the potential to generate inflation-adjusted returns in the long run. If you don’t want to take too many risks on your investment, you can contemplate investing in fixed-return instruments such as fixed deposits, which offer assured and guaranteed returns.

With home loan interest rates in India already going up following RBI’s hike in repo rate, repaying this loan faster would help you be debt-free, allowing you to concentrate on other essential goals.

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