Home loan availability has simplified the procedure of becoming a homeowner for many today. However, availing an LRD loan or a home construction loan and maintaining an excellent track history of loan prepayments are two distinct things to consider. Maintaining a strong record when making home repayments can have a good impact on your score. However, the home loan tenures range anywhere between 20 and 30 and this can become challenging to continue making loan EMI repayment every month, over extended tenures.
Also, while home loan rates are lower as compared to a personal loan, the higher repayment tenure makes the interest constituent appear bigger to individual. Hence, it is best to repay such home loans quickly. Read on to know a few ways to repay your home loan quickly.
Make repayment of a higher loan EMI –
You always can opt for a higher loan EMI from the beginning. Instead of selecting a home loan EMI containing 20-25 per cent of your income (monthly), you can consider making a higher contribution of anywhere around 40 per cent. For example, in the case, you are earning Rs 1 lakh every month, then you can make a monthly EMI of at least Rs 40,000 instead of Rs 20,000. Doing so assist you to lower your principal constituent on your outstanding loan quickly, which saves you from the massive burden of repaying interest constituent for a longer time period.
A home loan equaling Rs 50 lakh for a tenure of 15 years at an interest rate of 9 per cent per annum will cost more than Rs 91 lakh with interest constituent alone being more than Rs 41 lakh with loan EMI equaling Rs 50,000. However, in the scenario, if the loan EMI has been increased to Rs 60,000, then you can lower the interest constituent to Rs 29 lakh, and the repayment tenure can be lowered to 11 years from 15 years. By taking the decision to pay a higher loan EMI from the beginning, you would be able to simply maintain a steady pace towards home loan repayment. You would even be able to finish the repayment schedule over a shorter period than lower repayment tenure.
Make periodic part prepayments –
As a home loan is availed for higher repayment tenure, you as an individual can anticipate an increment in income in some time. With the income rise, you can select to make periodic prepayments. Part pre-payment assist in lowering the principal constituent with which you may choose to lower your repayment tenure.
With every part prepayment, your funding partner permits you to either lower the EMI constituent or lower the loan repayment tenure. When selecting to repay the loan quickly, it is better if you select a reduced repayment tenure, instead of a reduced loan EMI constituent.
Additionally, with the increment in income over time, you can make use of the bonuses or any surplus income during the repayment period to make the pre-payment as per your preference. For example, let’s assume you have availed a home loan equaling Rs 1 crore for a tenure of 30 years at a rate of interest of 7 per cent. In the case, you do not go for any part prepayment during the repayment tenure and assume the rate of interest stays constant during the entire repayment tenure, you would ultimately end up repaying Rs 2.4 crore over a span of 30 years period. However, in the case, you have paid Rs 2 lakh towards the end of 3rd year, your overall constituent paid can go down to Rs 2.29 crore. In simpler words, making a part prepayment equaling Rs 2 lakh towards the end of 3rd year would make you end up saving an overall amount of Rs 11 lakh and additionally reduce your loan repayment tenure too.
Regular part prepayments throughout the loan repayment tenure assist lower your interest constituent and loan repayment tenure. You can make use of your annual bonuses to make such prepayments periodically. Moreover, any financial gifts, inheritance, etc. can even be utilised to make the part prepayments.
It is better you check if your home loan comes with any part prepayment charge. In the scenario of a floating loan, the Reserve Bank of India has mandated financiers cannot charge any part prepayment fees. Simultaneously, it is equally crucial for you to note that your part prepayments must not come at any cost of other commitments like children’s higher education, emergency fund, etc.
Choose a short repayment tenure –
It is best you go for lower repayment tenure from the beginning of the loan period instead of opting for a higher repayment tenure, which may cost you a higher interest constituent. A shorter repayment tenure assists you in paying back the principal constituent along with a lower-interest constituent. Note that a shorter repayment tenure requires you to put up a higher EMI than longer repayment tenure.
Let’s understand it better with the assistance of an instance – A loan equaling Rs 30 lakh will need you to pay a monthly loan EMI equaling Rs 27,000 at a rate of interest of 9 per cent for a tenure of 20 years. In such a scenario, you would pay Rs 35 lakh in the form of interest constituent with the overall amount paid totalling Rs 65 lakh. In another case where the loan amount equals Rs 30 lakh for a span of 10 years, the EMI constituent would go as high as Rs 38,000 and the interest constituent would decrease to Rs 15 lakh and the overall amount to be paid would be at Rs 45 lakh. Thus, by lowering the loan repayment tenure by ten years, you would end up making a payment of additional funds equaling Rs 11,000 for a period of 10 years, but this would help you save a whopping interest constituent of Rs 20 lakh.
Repaying the loan over a short time period even endows you the option of availing a higher debt later in case any need comes up. Also, this would give a good boost to your score.
