How to repay home loan faster
Repaying a home loan faster can save you a significant amount of money on interest and help you become debt-free sooner. Here are some strategies to accelerate your home loan repayment:
- Increase EMIs or Payments: If you have some financial flexibility, consider increasing your Equated Monthly Installments (EMIs) or making extra payments whenever possible. Even a slightly higher monthly payment can make a substantial difference in the long run.
- Use Lump Sum Payments: Whenever you receive windfalls, such as a bonus, tax refund, or any other unexpected funds, consider using a portion of it to make a lump sum payment towards your home loan. This reduces the principal amount and, in turn, reduces the interest paid over the loan term.
- Switch to Bi-Weekly Payments: Instead of making monthly payments, switch to bi-weekly payments. By doing so, you’ll make 26 half-payments in a year, which is equivalent to 13 full payments. This extra payment each year will help you repay the loan faster.
- Refinance to Lower Interest Rates: Keep an eye on prevailing interest rates. If interest rates have decreased since you took out your home loan, consider refinancing to a new loan with a lower interest rate. A lower rate means you’ll pay less interest over the life of the loan, allowing you to repay it faster.
- Make Use of Loan Bonuses: Some lenders offer a loan bonus facility, where you can deposit additional funds into a linked account, and it gets adjusted against your loan principal. The interest on the loan is calculated on the reduced principal amount, enabling you to repay the loan faster.
- Avoid Long Loan Tenures: Opt for the shortest loan tenure that you can comfortably afford. While longer tenures may have lower EMIs, they result in higher overall interest payments. Choosing a shorter tenure means higher EMIs but less interest paid in the long term.
- Consider Prepayment Facilities: Check with your lender about prepayment options. Some loans allow you to make partial or full prepayments without penalties. Utilize these facilities whenever you have surplus funds to bring down the outstanding principal amount.
- Use Home Loan Linked Accounts: Some banks offer home loan linked accounts where the surplus amount in your savings account gets offset against your outstanding loan amount, thereby reducing the interest burden.
- Avoid Defaulting: Always make timely payments to avoid late fees and penalties. Defaulting on payments can not only damage your credit score but also lead to an extended repayment period.
- Cut Down on Other Expenses: Reevaluate your budget and find areas where you can cut down on unnecessary expenses. Redirect the saved money towards loan repayment.
Remember to check with your lender regarding any prepayment penalties or conditions before implementing these strategies. It’s essential to strike a balance between loan repayment and maintaining a reasonable financial cushion for emergencies. The goal is to reduce your debt burden while maintaining financial stability.