If you have the financial means, consider paying off your home loan faster. It will help you reduce your debt burden by leaps and bounds. Moreover, it will also help you steer clear of defaulting and ensure that you don’t have to spend on penalties or late fees.
Take a look at the various ways in which you can pay off your home loan faster.
Make a down payment that exceeds 20%:
Making a down payment on your loan significantly reduces the principal amount. It means that your debt obligation is instantly lower. As a result, you spend less on interest and overall repayment. You can do this by paying a percentage of the loan in advance. For example, you can make a down payment of at least 20%–30%, depending on what your finances allow.
Make a part-prepayment:
Making a few part-prepayments during the home loan tenor will further reduce the principal you owe and will reduce subsequent EMIs. Once your EMIs are low, you can pay them quickly and clear your loan in a shorter duration.If you seek easy prepayment options, opt for a home loan from Bajaj Finserv. Here you can gain from flexible prepayment options at no extra charge. Besides this, you can also enjoy a flexible tenor, the nominal rate of interest, and online application.
Select a short tenor:
Selecting a short tenor may cause you to pay higher home loan EMIs, but this will allow you to clear your loan faster. Also, on the whole, the amount of interest you pay will be lower as compared to what you would pay if you choose a long tenor. Further, clearing your loan in a short duration allows you to borrow more debt again if the need arises. Thus, boosting your credit score.
Additional Read: 4 top tips to decrease your home loan interest
Pick a lender with low-interest rates:
Before you select a lender:
- Make sure you study the market carefully.
- Make it a point to review all the lenders and compare their interest rates.
- Select the lender with the lowest one.
Thus, it ensures that your EMIs are affordable and that you can repay the loan quickly. If you are currently paying a high home loan interest, consider doing a home loan balance transfer to enjoy lower interest rates and other benefits.
Additional Read: Steps to apply for home loan balance transfer
Do not delay or miss your monthly payments
Delaying or missing out on your EMIs can be problematic in several ways:
- It will attract a penal interest of 2% plus applicable taxes.
- Your CIBIL score will go down.
- Your credit report will also reflect the default in payment.
The last two factors will make it difficult for you to avail yourself of credit in the future. A low CIBIL score will lead to the rejection of loan applications whenever lenders perform credit enquiries. In India, lenders conduct such enquiries whenever a borrower applies for any loan or credit card.
It is best to pay your monthly loan installments in time to avoid the above complications. Keeping your EMIs low is one way of reducing your monthly financial burden. You can do so by opting for a longer repayment tenor.
The credit report will reflect any delay or default in paying EMIs for a prolonged period. With timely repayments, the CIBIL score will improve gradually. You may also look for other ways to increase your credit score.
Pay a higher EMI if you can
Quickly repaying your home loan is beneficial since these are long-term advances. In addition, clearing the debt sooner rids you from mental stress and significant financial burden.
Opting for a shorter tenor is one of the ways you can do the same. The interest burden and the total cost of the loan remain low with such tenors, although the EMIs increase. Hence, make sure you can afford the home loan EMIs before applying.
Contrarily, opting for longer tenors is one of the ways you can reduce your home loan EMIs. However, the same increases the total interest payable and hence, the cost of the loan.
Consider a home loan of Rs. 70 Lakh at a 12% fixed rate of interest.
Your EMIs will be Rs. 77,000 (approx.) and the cost of loan Rs. 1.84 Crore (approx.) if you opt for a 20-year tenor. On the other hand, the EMIs become Rs. 84,000 (approx.), and the cost of the loan is Rs. 1.51 Crore if you go for a 15-year tenor.
Choose the tenor wisely to reduce the total payable interest on your home loan.
Use your Tax Refund
Make sure to take advantage of the following home loan tax exemptions:
- Under Section 80C
You can claim an income tax exemption of up to Rs. 1.5 Lakh against your home loan principal repayment under Section 80C.
- Under Section 24(b)
This benefit is available only if you have used the loan to purchase or construct a property. You also have to remain in possession of your property for at least 5 years to claim the deductions.
- Under Section 80 EE
First-time owners of homes can avail of tax benefits of up to Rs. 50,000 on payment of interests every year throughout the full tenor. However, this section allows you to claim such exemptions only if the loan value is under Rs. 35 Lakh and the property value under Rs. 50 Lakh.
The above exemptions are also available on joint home loans. However, the applicants have to be co-owners of the property and co-borrowers of the loan to avail these benefits.
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