Buying a home and holding the keys in hand was a blissful moment to which every millennial could aspire. It is one of the milestones in their life that they try to achieve, even by getting a loan. On the other hand, it keeps getting overwhelming while repaying it for a long tenure with huge interest payments, which might become quite tough and stressful.
In this blog, you’ll learn a few ways to reduce your Home Loan Tenure and close the EMI quickly.
13 Tips to Reduce Home Loan Tenure
1. Increase EMI Payments
One basic approach that you can adopt to reduce your home loan tenure is increasing your EMI payment. If you have such financial capacity in your family, plan to pay a higher EMI than the minimum required. This will help you pay off the principal amount faster, reducing the interest over the loan period.
Let’s take your current EMI to Rs. 20,000 and you increase it to Rs. 25000; the extra Rs.5000 will go towards the principal amount. This way reduces your principal faster, cuts down the overall interest you pay, and reduces the loan tenure.
2. Make Partial Prepayments
Partial prepayments can sometimes help reduce the tenure period. They involve paying a lump sum towards your loan whenever you have extra money. This reduces the principal amount and, consequently, the interest of the loan.
Let’s say you receive a yearly bonus, but instead of spending the entire amount, use part of it to make a partial prepayment toward your loan. If you pay Rs.1,00,000 in advance each year, you will save quite a sum in interest and shorten your loan term by a few years.
3. Opt for Bi-Weekly Payments
Normally, an EMI is paid based on the loan amount due each month. The main advantage of choosing the bi-weekly payments option is you’ll make 26 half payments in a year, which will equal 13 full payments.
To be precise, if your monthly EMI is Rs. 20,000, the bi-weekly payments will work out to Rs. 10,000 every two weeks. With this method, you end up making one extra EMI payment over the course of a year, which actually helps you repay the loan a lot more quickly.
4. Refinance for a Lower Rate
In case the interest rate is more than usual, you are bound to face problems in its repayment. You can opt for a new loan at a lower interest rate for payment of the existing ones instead of repaying the existing loan at this time. This is what we call Refinancing. It allows you to lower your monthly payments or retain them while cutting the borrowing term.
In order to do that, you need to seek out banks or other registered financial institutions (RFIs) that have interest rates on housing loans lower than those charged to your current one. When comparing different lenders, calculating the savings or interest saved, therefore requires you to plan for the repayment period of your loan.
Doing this lets you manage your home loan and achieve financial freedom sooner.
5. Switch to a Bank with Lower Interest Rates
If your current bank does not offer the interest rates like others, consider switching to another bank that does.
Example:
If you are paying 8.5% interest with your current bank and another bank offers 7.8%, switching can save you a significant amount in interest payments, reducing your loan tenure.
6. Dedicate Windfalls to Loan Repayment
If you receive windfall profits like tip-offs, tax refunds, or presents, channel them to servicing the loan. Like, when you get an annual bonus of Rs. 1,50,000, use part of it to settle some debts instead of spending it all. It reduces your principal and makes servicing it faster. Minimize Unnecessary Costs
7. Cut Down on Non-Essential Expenses
It might be new to you and your family to adapt to this necessity all of a sudden. Before planning, you must communicate with family members to coordinate with you along the process.
For Instance, if you spend Rs. 5,000 a month on dining out, try reducing it to Rs. 2,000 and use the saved Rs. 3,000 towards your EMI. Small savings like these can make a big difference over time.
8. Set Short-Term Repayment Goals
If you find a way to reduce the home loan tenure, it is important to figure out the short-term and long-term goals. This can be achieved by setting deadlines for each goal. The best way is to list down all of the loans and EMI, along with their tenure period. Group them into long-term and short-term goals through which you can prioritize closing the smaller one.
For Example, if your goal is to reduce your loan tenure by 5 years, set a target of making a partial prepayment of Rs.50,000 every six months. Achieving these smaller goals will keep you on track for the bigger goal.
9. Automate Savings for Prepayment
Between the juggling responsibilities, it is difficult to remember the date you planned to save. It is better to set up an automatic transfer to a dedicated savings account every month. This will accumulate funds for partial prepayments.
For Instance, you set up an automatic transfer of Rs. 5,000 from your salary account to a savings account each month. After a year, you will have Rs. 60,000 to make a partial prepayment on your loan, which is huge, right? Instead of forgetting the time to save, start automating the savings account.
10. Use Salary Hikes for EMI Payments
When you receive a hike or promotion, use a specified amount to increase your EMI payments instead of your spending.
Imagine that your monthly salary increased by Rs. 10,000 more than usual. And your original EMI is Rs. 20,000. After receiving the salary increase, you will now be able to pay Rs.30,000 per month.
This extra payment will make you repay the loan quickly, reducing the interest you need to pay.
11. Review Loan Agreement for Best Terms
Getting a loan is not a one-time commitment. It never ends until the EMI payment is complete. Until then, you should be aware of things regarding the loan document, and you need to review it periodically to understand the best possible terms.
These are a few mandatory things you need to look for in our Loan Agreement:
i) Firstly, check the interest rate type (fixed or floating) and the current rate.
ii) Check whether there is a penalty for prepayment or early payment of the loan.
iii) Know about the options applicable to change the tenure during the loan period.
iv) Check whether there is flexibility to pay the loan at your convenience based on your financial situation.
v) Check out any fees associated with the loan, such as processing fee, late payment charges, and administrative fees.
vi) As per Section 80C and Section 24(b) of the Income Tax Act, check whether the loan structure allows you to maximize tax benefits.
12. Educate Yourself on Tax Benefits
As far as finance are concerned, you should keep yourself updated with the tax benefits, which can save quite a bit of money and result in a good reduction in your tenure.
Among these, Section 80C of the Income Tax Act was one. You never know, you can avail a deduction upto Rs.1.5 lakh on the principal repayment, and under Section 24(b), you can get up to Rs. 2 lakh on it. Use these savings to make extra payments on your loan.
13. Stay Disciplined
Everyone overlooks discipline today. But to reduce your loan tenure, stick to your repayment plan and avoid the temptation to spend extra funds on non-essential items. More than planning, following consistently could get you the result you dreamt of.
Disciplined planning for closing a home loans can help you out with the ways you can close due on time.
Conclusion
Reducing your home loan tenure can offer financial benefits, including lower overall interest payments and easy home loans. By making higher EMI payments, opting for part-prepayments, increasing the loan EMI with your salary hikes, and choosing shorter loan tenures from the start, you can effectively shorten your home loan tenure.
Additionally, implementing these methods requires discipline and careful financial planning, but the long-term savings and financial freedom make it a worthwhile endeavor. Regularly review your repayment plan so that you can achieve the goal of reducing your home loan tenure and securing your financial future.