Methods to Pay Your Home Loan Faster
Home Loan is a long-term liability and it is generally a big-ticket size amount that stretches for 15 - 25 years. If you are looking to pay it faster, here are some strategies that you can implement.
When it comes to housing loan, most of the Home Loan borrowers tend to opt for the longest tenure, so that they can repay the Home Loan Equated Monthly Instalment (EMI) with ease. However, the longer the loan tenure, the higher is the total interest you have to pay on your loan. Therefore, it is beneficial for the borrower if the Home Loan is paid off as quickly as possible.
If you are looking to prepay the Home Loan quickly, here are some of the strategies you should consider:
- Choose a lender that offers lower interest rate: While choosing a lender, you should consider all the factors with rate of interest being a crucial one. You can go for a lender who charges lower rate of interest on the Home Loan. In case your Home Loan interest rate is higher than the prevailing market rate, then you can opt for a balance transfer of the Home Loan by switching to a lender offering loan at a lower interest rate. With reduced rate of interest, you can pay off your loan faster by paying the same EMI amount, which you were paying before balance transfer.
- Higher down payment: Usually the down payment for a home can be up to 25% of the home value. If you have enough savings and are capable of paying more than 25% for down payment, then you can apply for a lower loan amount. As a result, the interest amount will get reduced and so does your monthly instalment amount.
- Shorter loan tenure: Another option to pay Home Loan faster is to opt for a shorter loan term. But you will have to pay higher EMIs if you opt for a shorter loan tenure.
- Partial prepayment of loan: One of the easiest ways to pay a Home Loan faster is to make partial prepayments if you have surplus money. Making partial prepayment helps in bringing down the loan outstanding amount and thereby the interest amount.
- Make use of tax exemptions: If you are looking to reduce the cost of housing loan, make use of various tax deductions available under the Income Tax (IT) Act. As per the Section 80C, you can claim tax deductions up to Rs 1.5 lakh on the principal amount paid towards Home Loan repayment in a financial year. Also under Section 24(b), you can claim tax deductions on the interest amount paid on Home Loan up to Rs 2 lakh in a financial year.
These are some of the ways through which you can repay the Home Loan faster. You need to choose the right strategy based on your loan repayment capability.
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