Owning a home is awesome, but let's face it, dealing with a Home Loan for a long time can be a money-drainer. Here are five easy ways to pay it off faster and save some cash on interest:
1. Make extra repayments
Try to make extra repayments whenever possible. That means paying more than the minimum EMI amount or making lump sum payments whenever you have surplus funds. By doing this, you can reduce the principal amount of your loan and the interest that accrues on it.
Consider a scenario where you hold a home loan of Rs 90 lakhs with an interest rate of 8.5% over a 30-year period, resulting in a monthly EMI of around Rs 69,202. If you decide to make an additional monthly payment of Rs 10,000, the loan can be fully repaid in 19 years and 4 months. This strategy would lead to substantial savings, with a total interest reduction of over Rs 65 lakhs.
However, before you make extra repayments, check if there are any prepayment fees or restrictions. Home Loan lenders including Axis Bank do not charge any prepayment penalty if you choose a floating rate of interest.
2. Opt for a balance transfer
A balance transfer transfers your outstanding home loan from an existing lender to another offering a lower interest rate or better terms and conditions. Doing this can reduce your EMI amount and the total interest payable on your loan.
But before you opt for a balance transfer, consider the following factors:
- The difference between the interest rates offered by your current and new lender. Ideally, the difference should be at least 0.5% to 1% to make the balance transfer worthwhile.
- The processing fee, stamp duty, legal charges, and other costs are involved in the balance transfer.
Also Read: Ways to choose the right Home Loan for your needs
3. Increase your EMI amount periodically
A third way to get over your home loan quickly is to increase your EMI amount periodically. This means paying a higher EMI amount yearly or every few months, depending on your income growth and affordability. By doing this, you can reduce the principal amount of your loan faster and the interest that accrues on it.
4. Use your windfall income
Windfall income is any income you receive unexpectedly or occasionally, such as bonuses, incentives, gifts, inheritance, or lottery winnings. However, before using this approach, consider the following factors:
- Your liquidity and emergency needs. Try to have a sufficient emergency fund to cover at least six months of your living expenses and any unforeseen expenses.
- Try to prioritise paying off your other high-interest obligations, such as credit cards.
- Your investment opportunities. If the returns are higher than the interest, you may be better off investing your windfall income in a suitable option, such as mutual funds, stocks, or bonds.
5. Choose a shorter loan tenure
Opt for a loan repayment period less than the maximum available tenure. However, a shorter loan tenure means a higher EMI amount, which can strain your monthly budget and cash flow. You should only choose a loan tenure within your repayment capacity, which affects your lifestyle and savings.
Also Read: Smart ways to reduce your Home Loan EMI
Conclusion
A home loan is a big commitment that can affect your finances and peace of mind. However, by following the methods mentioned earlier, you can get over your home loan quickly and save money on interest.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
