Struggling with long-term home loan repayments and finding it hard to save for future investments?
High monthly EMIs can often stretch your budget thin, making it difficult to manage daily expenses and pushing you toward impulsive financial decisions. If this sounds familiar, you’re not alone—and more importantly, there’s a way out.
Let’s break this cycle today. Here are 5 smart and effective strategies to help you pay off your home loan faster and regain control of your finances.
1. Pay more than regular EMIs.
Whenever you have surplus funds, consider using them to make additional payments on your home loan along with your regular EMI. Any amount paid over and above the EMI is directly adjusted against the principal, as the interest for the month remains unchanged. This accelerates the reduction of your outstanding principal, leading to a decrease in the interest charged in the subsequent months. Consequently, a greater portion of your EMI goes towards paying off the principal. Over time, this creates a compounding effect, helping you repay your loan faster and save significantly on interest.
Example:
Let’s explore how making prepayments can reduce your loan tenure.
- Loan Amount: ₹60 lakhs
- Interest Rate: 8.5% per annum
- Loan Tenure: 20 years
- EMI: ₹52,069
Assuming the interest rate remains fixed throughout the loan tenure
Scenario 1: Increasing EMI by 1% Every Year
In Year 1 EMI: ₹52,069
Coming to Year 2 EMI: ₹52,590 (1% increase)
Year 3 EMI: ₹53,116
A small increase of just 1% in your EMI every year can reduce the loan tenure from 240 months to 205 months.
Scenario 2: Increasing EMI by 2% Every Year
With a 2% yearly EMI increase, the tenure reduces from 240 to 182 months.
Scenario 3: Increasing EMI by 5% Every Year
A 5% annual increase in EMI brings down the tenure significantly, from 240 months to 144 months.
Scenario 4: Increasing EMI by 10% Every Year
If you’re able to raise your EMI by 10% each year, the loan tenure drops dramatically to just 113 months.
This is often possible if your income grows steadily over time, and the savings on interest are massive.
Scenario 5: Paying 1 Additional EMI Every Year
At the end of each year, you pay one extra EMI of ₹52,053.
This small effort shortens the tenure from 240 months to 198 months.
Scenario 6: Paying 2 Additional EMIs Every Year
If you manage to pay two extra EMIs per year, your home loan ends in just 170 months.
2. Renegotiate your home loan interest rate:
Even if your EMI stays unchanged, securing a lower interest rate on your home loan can speed up your loan repayment and reduce the total interest paid over time.
Even a small drop of 0.3% in the interest rate can lead to substantial savings, potentially amounting to several lakhs over the full loan term.
Start by ensuring you’re not paying more than others. If your interest rate is noticeably higher than what your friends, neighbours, or colleagues are paying, it’s time to act.
Approach your bank with this information and request a rate revision. Most lenders are open to revising rates if you provide proof of better offers elsewhere. If your bank refuses, consider switching to another lender through a Home Loan Balance Transfer (HLBT).
HLBT facilities allow you to shift your remaining loan to a new bank offering a lower rate, helping you save money and repay your loan faster.
To know more about Home Loan Balance Transfer (HLBT) Read here.
3. Capitalise on tax benefits- Sec 80C & 80EE.
Make the most of tax benefits to reduce your home loan burden.
Did you know? The principal portion of your home loan EMIs can help you save on taxes! Under Section 80C of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh each financial year for the amount repaid towards the principal. This benefit not only eases your loan burden but also reduces your overall tax liability.
Additionally, Section 80EE offers further relief. If your property value is ₹50 lakhs or less and the loan amount is ₹35 lakhs or less, you can claim up to ₹2 lakhs per annum on interest payments.
Utilising these tax benefits wisely can significantly reduce your overall loan burden and shorten your repayment period.
As we are talking about quick ways to clear a home loan, a credit card is also something we need to take care of. Click here to choose the right credit card for you.
4. Higher Down Payment
By increasing your down payment, you reduce the overall loan amount, which leads to lower interest charges throughout the loan. This not only lowers your monthly EMI but also helps you save significantly on the total interest paid. A larger down payment can also make it easier to secure better loan terms, as it shows financial stability to lenders. Ultimately, this strategy can accelerate your path to becoming debt-free while easing your financial load in the long run.
5. Never miss an EMI – Pay timely
Missing an EMI not only attracts late payment penalties but can also negatively affect your credit score. A poor credit history makes it harder to secure loans or credit cards in the future and can lead to higher interest rates. On the other hand, consistent on-time payments build your financial credibility and improve your chances of getting better loan offers down the line. Prioritise your EMIs just like any essential expense—it pays off in the long run.
Conclusion
In conclusion, there are several effective strategies to help you repay your home loan faster. Whether it’s making small adjustments to your EMI, negotiating a better interest rate, or utilising tax-saving options, each approach can have a significant impact on your loan repayment journey. The key is to choose the right strategy based on your financial capacity and long-term goals.
By committing to regular prepayments, increasing your down payment, and making use of available deductions like those under Sections 80C and 80EE, you can reduce both the tenure and interest on your home loan.
Take the time to assess your financial situation, explore these strategies, and select the one that aligns best with your repayment ability. By doing so, you’ll not only save money but also achieve financial freedom sooner than you think.
