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Make a large down payment
Make part-prepayments as and when you can
Select a short tenor to repay the loan quickly
Shop for a lender with low interest rates
If you have the financial means, consider beneficial ways to pay off your home loan faster. This will help you reduce your debt burden by leaps and bounds. Moreover, it will also help you steer clear of defaulting and will 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.
Making a down payment on your loan significantly reduces the principal amount. This 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.
Making a few part-prepayments during the home loan tenor will further reduce the principal that you owe and so, will reduce subsequent EMIs. Once your EMIs are lower, you can pay them on a timely basis 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, nominal rate of interest and online application.
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. This also boosts your credit score.
Additional Read: 4 Top Tips To Decrease Your Home Loan Interest
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. Then, select the lender with lowest one. This ensures that your EMIs are affordable and that you can repay the loan quickly. In case you find that you are currently paying a high home loan interest, consider doing a home loan balance transfer to enjoy lower interest rates and other benefits.
Make it a point to implement each of these tips if you wish to clear your home loan fast without your finances taking a hit.
Additional Read: Steps to Apply for Home Loan Balance Transfer
Delaying or missing out on your EMIs can be problematic in several ways. Firstly, it will attract a penal interest of 2% plus applicable taxes. Secondly, your CIBIL score will go down. Thirdly, your credit report will also reflect the default in payment.
The last two factors will make it difficult for you to avail credit in future. A low CIBIL score will lead to the rejection of loan applications whenever lenders perform credit enquiries. Such enquiries are conducted whenever a borrower applies for any loan or credit card with any lender in India.
It is best to pay your monthly loan instalments 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 the credit score.
Quickly repaying your home loan is beneficial since these are long-term advances. 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 along with the total cost of loan remain low with such tenors, although the EMIs increase. Hence, make sure you can afford the home loans 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 loan.
Consider a home loan of Rs.70 Lakh at 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. One the other hand, the EMIs become Rs.84,000 (approx.) and the cost of loan 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.
I. Under Section 80C
You can claim an income tax exemption of up to Rs.1.5 Lakh against principal repayment of your home loan under Section 80C.
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.
II. Under Section 24(b)
You can avail income tax benefits of up to Rs.2 Lakh on your home loan interest paid under Section 24(b).
The exemptions are only available if you complete the purchase or construction of your property within 5 years. The deductions reduce to Rs.30,000 if you don’t abide by this condition.
III. Under Section 80 EE
First-time owners of homes can avail 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. The applicants have to be co-owners of the property and co-borrowers of the loan to avail these benefits.
Renting out your house is an ideal way to reduce the burden of high EMIs. You not only get consistent monthly income but can also make sure not to default in your home loan payments.
You can rent out an entire floor if you have purchased/constructed a multiple-storey house.
Or, you can rent out a portion of your house if it is single-storeyed. There are numerous room partition ideas that can help you achieve the same. These partitions are usually of glass, wood, or material board. Room partitions not only enable you to rent a portion of your house but also make it appear large and look more appealing.
You will also be able to avail the income tax benefits for a rented-out property. The exemptions are also available if you have leased-out the entire house.
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