Buying a home is probably the greatest investment in a person’s life. A home loan can take you one step closer to buying your dream home. However, people often refrain from applying for a home loan because it is a long-term commitment. It usually takes 15 to 20 years to repay a home loan.
But what if we tell you that you can get rid of the financial burden within a shorter time? It will reduce your total interest outgo and improve your credit score. The best ways to prepay your home loan are as follows:
1. Find a Lender Offering a Low-Interest Rate
You will come across multiple banks offering home loans in your search for a legitimate lender. However, a crucial factor to consider during your search process is the housing loan interest rate. A lower interest rate means you will have a comparatively lesser amount to repay. It will ensure that you can repay the dues faster. If you are currently repaying a home loan with a high-interest rate, you can change your lender through a Home Loan Balance Transfer.
2. Opt for a High Down Payment
You will be tempted to procure the maximum loan amount you are eligible for. But it would be wise to pay the maximum down payment. Your interest and EMI burden will be lower with a low principal loan amount. If your financial condition supports a down payment of around 20-25% or even more, it will ensure a smoother repayment. Try liquidating investments with no returns to minimize future debt burden.
3. Increase Your EMI
Suppose you received a good salary increment after obtaining a home loan. If your income increases after availing of the home loan, talk to your lender about paying more EMI. When you increase your monthly EMI, it will reduce your loan tenure. It is the most common way of faster loan repayment.
A small increase in your monthly EMI can reduce the tenure by a few months. Using a home loan EMI calculator, find out how much an increase in your EMI can reduce your loan tenure considerably.
You should also consider other charges while selecting your lender. Know in detail about late payment charges, processing charges, and other hidden costs as it can make a huge difference.
Consider paying your EMIs on time to avoid penalty charges. Besides, delayed repayments can negatively impact your credit score and future loan rejections.
4. Make Part-Prepayments
Lenders won’t charge you for a certain amount of part-prepayment on your home loan. Part-prepayments during your loan tenure can minimize your principal loan amount and reduce your EMIs. Take advantage of the flexible prepayment options whenever you have a financial surplus, such as a bonus. But you should find out the prepayment charges of your lender first. Some banks will charge an extra fee after making a few part-prepayments.
5. Take Advantage of Home Loan Interest Rates
Besides helping you own your dream home, a home loan can also offer several tax benefits. The tax benefits can help you save a considerable amount every year. Don’t forget to claim a tax deduction of up to Rs 2 lakhs in a financial year. Especially individuals within the high tax brackets can significantly benefit from this.
Closing Thoughts
Reduce your financial stress by repaying your home loan faster. It can also help you focus on other important investments in life, like a vacation abroad or your child’s higher education.