When you take out a home loan, your aim is often to own your home as soon as possible. However, the long tenure can make the repayment process feel like a never-ending burden. Fortunately, there are several strategies you can use to reduce your home loan tenure, helping you become debt-free quicker and saving a significant amount on interest.
In this guide, we will walk you through simple yet effective tips on how to reduce home loan tenure, so you can enjoy the peace of mind that comes with owning your property outright, sooner than you think.
Increase your monthly EMI payments
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One of the most effective ways to reduce your home loan tenure is by increasing your monthly EMI (equated monthly instalment). When you pay more each month, the outstanding loan balance decreases faster, and your loan term reduces accordingly.
Let’s break it down: If you stick to your original EMI, you will take the full loan term to repay the loan. However, if you can manage to increase your EMI by even a small amount, it will have a huge impact on reducing the time it takes to pay off your loan.
For example, if your EMI is Rs. 20,000 and you increase it by Rs. 5,000, this extra payment will go directly toward reducing your principal balance. This means you will pay off your home loan in a shorter time.
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Make lumpsum prepayments
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Another great way to shorten your home loan tenure is by making lumpsum prepayments. These are extra payments made over and above your regular EMI. The amount you prepay goes straight into the principal, reducing your outstanding balance and, in turn, your loan tenure.
Prepaying Rs. 50,000 or Rs. 1,00,000 might seem like a lot, but doing this regularly can significantly reduce the loan's term. Plus, you will pay less interest over the life of the loan because interest is charged on the principal balance.
If you come into extra money, such as from a bonus or an investment maturity, consider using it to prepay your loan. This will save you both time and money in the long run.
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Refinance your loan at a lower interest rate
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Refinancing your home loan to a lower interest rate can also help you reduce the loan tenure. If market interest rates have fallen since you took out your loan, you might qualify for a better rate.
Lower interest rates mean that more of your monthly EMI goes toward reducing the principal rather than paying off interest. This accelerates the repayment process and reduces the overall loan term.
Before refinancing, make sure to check if there are any prepayment penalties or processing fees that might affect your decision. Also, ensure that the new loan terms align with your financial goals.
Opt for a loan with a shorter tenure
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If you are in a position to afford higher monthly EMIs, you can opt for a home loan with a shorter tenure. Most home loans offer terms of 20, 25, or even 30 years, but you can choose a shorter term to reduce the overall loan tenure.
While this option means your monthly payments will be higher, the benefit is that you will pay off the loan much sooner and save a significant amount on interest.
For instance, switching from a 30-year home loan to a 20-year home loan means that while your EMI may increase, you will reduce your loan tenure by 10 years, cutting down your total interest payments.
Make extra payments regularly
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Even if you cannot afford to increase your monthly EMI significantly, making occasional extra payments can also reduce your home loan tenure. You can make extra payments in the form of additional amounts to your EMI, or you can pay a large lump sum from time to time.
For example, if you receive a yearly bonus, you can use a portion of it to make an extra payment toward your home loan. These regular additional payments will reduce your principal balance, which in turn reduces your loan tenure.
Use windfalls wisely
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Sometimes, you might come across unexpected windfalls like an inheritance, a bonus, or a tax refund. If you receive a windfall, use it to make a substantial prepayment on your home loan. This will reduce the principal and, consequently, the interest you will have to pay.
You might not receive windfalls regularly, but when they do come, it is wise to allocate them toward your home loan. Even a one-time prepayment can have a significant impact on reducing your loan tenure.
Focus on your principal amount
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Many people are focused on paying the interest part of their EMI without realising that paying down the principal amount early is just as important in reducing the tenure. The more you can pay off the principal amount early, the quicker the loan term will end.
You can do this by making extra payments towards the principal amount, whether it is through a higher EMI, a lump sum prepayment, or additional payments.
Review your loan regularly
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It is important to review your loan and repayment plan regularly. Sometimes, a small tweak in your approach can lead to significant savings in terms of time and interest. If your financial situation improves, you can increase your EMI or make a lumpsum payment.
Conversely, if your finances become tight, check with your lender to explore options like loan restructuring or temporary EMI adjustments. Staying informed and proactive will help you make the best decisions when it comes to your home loan.
Regular loan reviews often reveal opportunities for better terms through refinancing or balance transfers. Bajaj Finserv offers attractive balance transfer options with top-up loans up to Rs. 1 crore*, allowing you to consolidate your finances while securing better interest rates. Check your eligibility for a seamless loan transfer experience that could save you thousands in interest payments. You may already be eligible, find out by entering your mobile number and OTP.
Switch to a floating interest rate
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If you took out a home loan with a fixed interest rate, consider switching to a floating interest rate. A floating rate can be lower than a fixed rate, which can help you save money on interest over time. When you save on interest, more of your EMI goes toward paying down the principal balance.
However, note that floating interest rates can change over time, so be prepared for fluctuations in your monthly payments.
