Top Strategies for Early Home Loan Repayment

Learn effective strategies and the benefits of paying off your home loan early.
Home Loan
2 min
24 May 2024

Paying off a home loan ahead of schedule is a significant financial milestone that many homeowners aspire to achieve. Not only does it provide relief from monthly mortgage payments, but it also unlocks a range of financial benefits, including substantial savings on interest and increased financial freedom. Home loans offered by Bajaj Housing Finance provide flexibility in repayment options, allowing you to make prepayments without any penalty. By leveraging these features wisely, you can accelerate your journey to debt-free homeownership and save significantly on interest payments over loan tenure.

Tips to repay your home loan faster

  1. Make extra payments: One of the simplest ways to reduce your loan tenure is by making extra payments whenever possible. Even a small additional amount paid regularly can significantly shorten your loan period and reduce interest.
  2. Increase EMI amounts: Increase your Equated Monthly Instalments (EMIs) when you get a salary hike or a bonus. This will ensure a faster repayment schedule without significantly impacting your monthly budget.
  3. Round up your payments: Rounding up your payments to the nearest hundred or thousand can help chip away at your principal faster without requiring a significant lifestyle change.
  4. Refinance your loan: Consider refinancing your home loan or opt for a home loan balance transfer for a lower interest rate. The savings from the reduced interest can then be used to make extra payments towards the principal.

Benefits of early home loan repayment

Paying off your home loan early offers several significant advantages:

  • Interest savings: The most apparent benefit is the substantial savings on interest payments. The longer you take to repay your loan, the more interest you accrue. Early repayment reduces this cost significantly.
  • Financial freedom: Without the burden of monthly EMI payments, you’ll have more disposable income for other financial goals, such as investing, saving for retirement, or planning for your children's education.
  • Improved credit score: Clearing your home loan early positively impacts your credit score, making it easier to obtain future loans or credit cards at favourable terms.
  • Peace of mind: Knowing that your home is fully paid off provides immense peace of mind and a sense of accomplishment, reducing financial stress.

Prepayment vs. EMI reduction: Which is better?

When you have extra funds, you might wonder whether to prepay a part of the principal or reduce the EMI. Here's a look at both options:

  • Prepayment: This involves paying a lump sum towards your loan principal, reducing the outstanding amount and the interest payable. Prepayment is ideal if you receive a windfall, such as a bonus or inheritance, and can significantly shorten your loan tenure.
  • EMI reduction: By reducing the EMI, you lower your monthly financial burden, making it easier to manage your finances. This option doesn’t necessarily shorten the loan tenure but makes the monthly outflow more manageable.

Which is better depends on your financial situation and goals. If you want to pay off your loan early and save on interest, prepayment is more effective. If you are looking for better cash flow management, EMI reduction might be more suitable.

Understanding home loan prepayment penalties

Before deciding on prepayment, it’s essential to understand any charges involved. Some banks and financial institutions charge a fee for prepaying a loan before its term ends. These charges can sometimes negate the benefits of prepayment.

  • Fixed vs. floating-rate loans: Typically, floating-rate loans don’t have prepayment charges, but fixed-rate loans often do. Check your loan agreement for specific terms.
  • Partial vs. full prepayment: Some lenders may have different charges for partial prepayments (smaller lump sums) versus full prepayment (paying off the entire loan).

Always read the fine print and consult your lender to understand the exact costs associated with prepayment.

With a Bajaj Housing Finance Home Loan, if you opt for a floating interest rate, you have the option to foreclose the entire loan amount or make partial prepayments without incurring any additional fees.

Strategies to save on interest payments

  1. Choose a shorter loan tenure: While the monthly EMIs will be higher, opting for a shorter loan tenure reduces the total interest paid over the life of the loan.
  2. Opt for a lower interest rate: Shop around and negotiate with lenders to secure the lowest possible interest rate. Even a slight reduction in the interest rate can result in substantial savings over time.
  3. Balance transfer: If you find a lender offering a significantly lower interest rate, consider transferring your balance. However, be mindful of any fees associated with the transfer process.
  4. Automate payments: Setting up automatic payments ensures timely payments, helps you avoid late fees and penalties, and sometimes even earns you a lower interest rate.

How to use lump-sum payments to pay off your home loan early

Lump-sum payments can be an effective way to pay off your home loan early. Here’s how to maximise their impact:

  1. Direct to principal: Ensure that any lump sum payment goes directly towards reducing the principal amount. This will reduce the overall interest you need to pay.
  2. Regular lump sums: Make regular lump sum payments annually or biannually if possible. This can significantly reduce the loan tenure.
  3. Bonuses and windfalls: Use any bonuses, tax refunds, or windfalls to make lump-sum payments. These unexpected funds can have a substantial impact on reducing your loan balance.
  4. Plan and budget: Incorporate lump-sum payments into your financial plan and budget. Even small, planned contributions can add up over time.

By understanding how to pay a home loan early, utilising effective strategies, and making informed financial decisions, you can enjoy the benefits of a debt-free home much sooner. Early repayment not only saves you money on interest but also provides greater financial security and freedom.

Why should you consider Bajaj Housing Finance Home Loan?

When it comes to paying off your home loan early, leveraging the right financial products can make all the difference. Bajaj Finance provides beneficial home loans tailored to meet diverse needs, offering competitive interest rates and flexible repayment options. By choosing a home loan provider like Bajaj Finance and implementing strategic repayment techniques, you can expedite your journey to financial freedom and own your home outright sooner. Bajaj Housing Finance Home Loan provides various benefits, such as:

  1. Customise your home loan to suit your specific needs with our personalised loan solutions. Whether it's choosing the loan amount, or repayment tenure, empower yourself to achieve homeownership on your terms.
  2. With competitive interest rates starting at 7.99%*  p.a., our home loans offer affordability and manageability, with EMIs as low as Rs. 722/lakh*, making homeownership easily achievable.
  3. Enjoy convenient repayment options with extended tenures of up to 32 years. Select a repayment plan that aligns with your financial situation, allowing you to effectively prioritise your loan repayment.
  4. Take advantage of our top-up loan facility, accessing additional finance of Rs. 1 crore* or higher for home renovations, repairs, or expansions. With minimal documentation and attractive interest rates, our home loan balance transfer facility ensures ease and flexibility in accessing additional funds.
  5. Paying off a home loan ahead of schedule is not just a financial goal but a significant milestone that offers numerous benefits. From saving on interest payments to gaining increased financial freedom, early repayment empowers you to take control of your finances and achieve your dreams sooner. Additionally, with the tailored solutions and beneficial features offered by Bajaj Finance, you have the necessary tools to accelerate your repayment process and enjoy the security and freedom of owning your home outright. Apply for a home loan today!

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

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Frequently asked questions

Is it wise to pay off a home loan early?
Paying off a home loan early can be wise as it reduces interest payments and frees up funds for other investments. However, consider prepayment penalties and whether you have higher-interest debts to prioritise first.
How can I pay off my 30-year home loan in 10 years?
To pay off a 30-year home loan in 10 years, make extra principal payments regularly, refinance to a shorter term if possible, increase your monthly EMI, and apply any windfalls like bonuses or tax refunds towards the loan.
How can I clear my home loan early?
Clear your home loan early by making additional principal payments, opting for bi-weekly payments instead of monthly, refinancing to a lower interest rate, and using lump-sum payments from bonuses or savings.
Is there a penalty for paying home loan off early?
With Bajaj Housing Finance Home Loan, individual borrowers with a floating interest rate can foreclose the entire loan or make partial prepayments without incurring any additional fees.
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