Owning a home is a cherished aspiration for many individuals. However, the burden of a long-term mortgage will feel overwhelming for many. Home loans are designed for long-term financial planning. But the good news is that you need not be stuck with this loan for the entire tenure. You must adopt innovative financial strategies to pay your home loan faster, reduce interest rates, and achieve financial freedom.   

One of the most effective strategies is to consider paying your home loans much faster. It will help you reduce the financial stress burdening your shoulders. It will help you minimize default payments and ensure you don’t have to pay any penalties or late fees. This blog will comprehensively cover the best strategies to repay your home loan without straining your budget.  

How to Close Your Home Loan Early: 10 Proven Methods

Here are some easy and effective ways to repay your home loan faster:

  1. Higher Down Payment  

One of the first and foremost methods is to make a higher down payment. Making a heavier down payment on your loan can significantly reduce your principal amount, thereby reducing your EMI. The amount of money you pay in interest will also be reduced on the overall repayment. You can do this by paying a percentage of your loan in advance.   

  1. Part Prepayment of Loan  

Making some bulk prepayments on your principal amount will considerably reduce the interest. You also have the advantage of paying less on your home loan. Once your EMI is low, you can pay them quickly and clear your loan in a shorter duration. Various banks and NBFCs give home loans with flexible prepayment options at no extra charge. You can also take advantage of flexible tenure, a nominal rate of interest, and online application.  

  1. Elevated EMIs  

Suppose your monthly income can accommodate a slight elevation in your home loan EMI. It is one of the best choices to reduce your principal amount. Even the slightest increase in the EMI can reduce the loan tenure. A slight reduction in your loan tenure can also help you become debt-free earlier, saving you long-term interest costs. The only point you need to ensure is whether you have sufficient bandwidth to accommodate a higher EMI month-on-month.  

  1. Reduced Loan Term  

Though Longer Tenure has the advantage of a reduced EMI amount, it has the disadvantage of paying a higher interest amount—a short tenure results in a higher EMI amount, which means paying your loan much faster. The minor inconvenience of paying a higher EMI on a monthly basis will help you save money rather than bearing additional interest to the home loan providers.  

  1. Choose a Lender with a Competitive Interest Rate  

Whenever you select a lender, you need to study the market conditions. Always go in for the lender providing home loans at a competitive rate, so it won’t put a big hole in your pocket. At the same time, you need to see the customer feedback and review so that you will not get tied up with the lender with an unreliable lender. This also ensures that you end up with a lender with affordable EMIs.   

  1. Pay EMIs Promptly  

Always keep in mind that maintaining a good practice of paying your EMIs on time will reap good results in the long run. Missing your EMIs will  

  • Hurt your Credit Score  

  • Get reflected on your credit report  

  • Attract penal charges of 2% with applicable taxes  

  • Result in interest accumulation with a counter effect of higher loan repayment amount  

  • Revoking of special discounts and benefits attached to the loan  

  • Result in Property Foreclosure by the lender  

A lower credit score will make it difficult to avail of future credits. It might also result in loan rejections in the future. So, it is always better to pay your loan installments month-on-month. You can also give your banker an auto debit option to deduct your monthly EMI on the due date automatically. If your monthly income cannot accommodate the EMIs, you can request that your lender reduce the EMI. It may increase your loan tenure, but you will not avoid paying EMIs.   

  1. Utilize Tax Refunds  

Take advantage of various Income Tax deductions available under the Income Tax Act.   

  • If you have made a prepayment of the loan, you can claim a deduction of Rs.1,50,000 u/s 80C, but you should not have sold the house within 5 years of possession.  

  • Interest paid on the loan can help you avail a deduction of Rs.2,00,000 u/s 24(b). But make sure you got the loan for the purchase or construction of the house  

  • Interest incurred during the year for a home loan can help you claim a deduction of Rs.1,50,000 u/s 80EEA.  

  • Stamp Duty & Registration fees can claim a Rs.1,50,000 u/s 80C deduction.  

  1. Make Use of Unexpected Gains  

Take advantage of any unexpected gains that you have in the form of bonuses accrued, tax refunds, or any inheritance you make for additional loan payments. This can significantly help you in the loan repayment process. By making lump-sum payments, you can dramatically reduce the total interest you pay during the tenure of the loan. 

  1. Balance Transfer  

Suppose you are currently paying a high home loan interest. In that case, you can also consider going in for a balance transfer with a lender to enjoy the benefit of lower home loan interest and other benefits. A Balance Transfer of the loan allows you to continue with the same loan tenure but pay a lower rate of interest that will give you a significant amount over the loan tenure. A lower interest rate will result in a lower interest rate or reduce your tenure. However, consider any processing fees that come with the transfer.  

  1. Regularly Review Your Loan  

Reviewing your loan on a regular basis will help you come up with ideas for paying your home loan faster. Keep updated with financial news on a regular basis, especially with respect to your lender, any changes in interest rates, or any special offers. If any of these factors align, you can repay the loan faster.  

Conclusion:  

Many might be thinking that paying home loan faster is a distant dream. But it is very much achievable with savvy financial planning and discipline. You can make extra payments, increase your EMI over time, choose a lower interest rate, and reduce your loan tenure and interest burden. Each small and thoughtful step will bring you closer to a debt-free life. Implement these strategies over a period to enjoy financial freedom!  

Frequently Asked Questions

  1. What are some of the effective strategies to pay Home Loans faster?  

Some effective strategies for paying off home loans include making extra payments, opting for lower interest rates, and making lump sum payments as and when possible.  

  1. Will extra payments reduce my home loan term?  

Extra bulk payments will reduce your principal and monthly interest payments. Reducing the principal amount will also allow you to repay your interest faster.  

  1. Are there any disadvantages in repaying the loan faster?  

Paying your home loans faster might sometimes put you in a cash crunch situation. However, proper financial planning can overcome this and effectively manage it.