by Home loans have made purchasing house properties affordable for many people. However, due to its long tenure, which can go up to 30 years, the overall interest cost in a home loan can easily exceed the principal amount. Due to this, most borrowers always look for ways to pay off their home loans soon. To help you with the same, here are a few ways through which home loan borrowers can pay off their home loans quickly:
Prepay whenever you have surplus
To close home loan early, borrowers should make partial prepayment whenever they have surplus funds. When they make partial prepayment, they get options to either reduce their home loan tenure or monthly payments (EMIs). In such a case, it is advisable to reduce your loan tenure and keep your EMIs same as before. This is because reducing your home loan tenure will help you save more on the overall interest cost whereas reducing your home loan payments will only reduce your EMI burden. Thus, those who are comfortable with their existing home loan EMIs should choose for tenure reduction.
Also note that as per the RBI guidelines, banks and HFCs/NBFCs cannot levy prepayment penalty on the prepayments made towards any retail loans, including home loans, lent on floating interest rates. Thus, borrowers must prepay their housing loans whenever a good amount of extra money is available with them without compromising their monthly contributions meant towards their crucial financial goals. Doing so might leave them with inadequate funds when the need arises and force them to avail costly loans in future. Individuals requiring head start towards setting their financial goals or making consistent monthly contributions towards their future goals can learn a trick or two by reading blogs on personal finance. Now-a-days there are multiple websites such as Investopedia available that covers a wide range of articles on topics such as money management, saving and investing. For Hindi readers too, websites like Finshastra can provide a great deal of knowledge on managing your money, loan and investments.
Transfer existing loan to a new bank at lower interest rates
Home loan balance transfer is a loan facility that allows existing home loan borrowers to transfer their outstanding loan amount from their existing lender to a new one offering lower interest rates and/or better loan terms. Transferring home loans at a lower interest rate will not only help home loan borrowers in reducing their EMIs but also the overall interest cost. Choosing for the same EMI may allow borrowers to pay offer their home loans sooner than the original loan tenure. Borrowers should consider choosing tenure extension only when they are struggling with their current home loan EMIs and thus, are aiming for lower monthly payments.
Home loan EMIs during the initial years of the loan tenure constitutes mostly of the interest component. Therefore, it is advisable to home loan borrowers to transfer their outstanding loan amount during the initial few years of their loan tenure. Doing so will help them save higher on their overall interest outgo. Also, before making the loan transfer, do a proper cost-benefit analysis to ensure net profitability. While doing so do not forget to factor in the foreclosure charges (if applicable) for closing the original loan and processing fees and other charges applicable when transferring to a new lender.
Choose home loan products offering increasing EMIs
Among various loan types, home loan comes with the longest repayment tenure usually stretching up to 30 years. While servicing the loan for such a long period, a borrower’s income is expected to increase, particularly in case of salaried professionals. If a borrower expects his income to increase with time, then he should try increasing his home loan EMI gradually. In fact, there are many banks and HFCs such as ICICI Bank and HDFC Bank that offer customers the flexibility to increase their home loan EMIs every year in accordance with the increase in their incomes; thereby, helping them repay their home loans faster. Such loan facility also boosts an applicant’s home loan eligibility as in such cases banks and HFCs also consider the future earning potential of the prospective borrower.
