A popular adage says that the best investment on earth is a piece of earth. Buying a home that you can call your own is one of the wisest decisions that you can make. Unlike other financial investments, a house is associated with a lot of emotions too. The entire journey from scouting for a dream property to finally moving into it is challenging and exciting in equal measure.
People often go to great lengths just to have a home of their own. It is one of the biggest investments in life, and you surely do not want to compromise. You decide to apply for a home loan to bridge the gap between your dreams and reality. But a typical home loan is a long-term commitment that extends over 20-25 years. It is important that you efficiently plan your home loan repayment to get the maximum benefits without disturbing the family budget.
Here are seven easy ways to repay the home loan faster, save a few lakhs, and quickly become debt-free!
Most banks & housing finance companies ask for a 10-20% downpayment on home loans. This is a minimum requirement, and you can surely cough up more if you can afford to do so. A higher downpayment can reduce the principal amount, the EMIs, and the loan tenure.
You can liquidate some low-yielding investments like a bank FD or insurance policies and divert the proceeds to make a higher downpayment on the home loan. Try to make the maximum downpayment possible to reduce the loan burden and quickly pay off the same.
While you may be tempted to opt for the longest tenure, remember that your loan burden increases significantly due to a higher interest outgo. A shorter loan tenure does increase the EMI. But it also reduces the total debt burden due to quicker loan repayment and lower interest liabilities.
Do not stretch the loan tenure just to reduce the EMI. Select the tenure carefully after considering the impact of the EMIs on your monthly budget. When you repay the home loan faster, you also improve your credit rating and become eligible for other loans.
You are excited, and you are in a hurry to quickly seal the deal. But it is always advisable to be patient and take an informed decision. Study the market meticulously and compare the offers of all the major players. Choose the lender who offers the best interest rate along with flexible terms and simple eligibility criteria.
Look out for special schemes that banks launch during festive occasions & events. Lower interest rates and flexible repayment terms provide a great opportunity to repay the loan faster. Customers with high credit scores often get the best home loan offers.
Before you sign up, ensure that the lender allows you to make part payments on your housing loan. Check whether the lender charges any penalty for prepayments. Whenever you have additional funds due to salary hikes, bonuses, gifts, or maturity of investments, you can use the same to prepay the home loan.
Making regular prepayments can reduce the outstanding loan amount and help you close the loan account faster. Please check whether the lender has any limit on the frequency and amount of prepayments. While some lenders do not charge any penalty, others may charge the same if you exceed a fixed number of prepayments.
Ok. You have availed of the best offer in the market, and you are diligently repaying the home loan. After some time, you notice that there are other better offers that suit your requirements. The interest rates offered by other lenders may be much lower, or they may provide better prepayment options. The current lender may be refusing to lower the rates despite the fall in the market.
You can then decide to shift your outstanding loan amount to any other lender who offers better terms. Undertake a proper cost-benefit analysis by considering the penalty charges, processing fees, and savings due to lower interest rates. The shifting process should also be hassle-free and seamless. It makes more sense to transfer the home loan in the initial years when a major amount remains unpaid.
Missing your monthly installments due to financial problems will only lead to bigger problems. Plan your monthly budget and personal finances to ensure that you never delay or default on your home loan EMIs. Any lapse in this regard will result in the following complications:
1, Penalty & late payment charges will be levied
2, Adverse remarks in your credit report for every delay or default
2, Inability to access fresh loans on favorable terms
Timely repayment helps you to close the loan faster. Missing out on EMIs can prove to be a very costly error, and it shall lead to higher expenses in the future. This will delay the loan repayment process due to a higher debt burden.
Both home & home loans can be expensive. But the numerous tax benefits that you get on a home loan can significantly reduce your financial burden and enable you to repay the loan faster.
The following exemptions can be availed on housing loans under the income tax provisions.
1, Section 80C: Principal repayment up to Rs.1.50 lakh every year can be claimed as a deduction from income.
2, Section 24(b): Interest payments up to Rs.2 lakh can be claimed as a tax deduction every year.
3, Section 80EEA: First-time home buyers get an additional deduction of up to Rs.1.50 lakh on interest payment if the property value is under Rs.45 lakh.
It is good to buy a home. But it’s great to really own it by quickly repaying the home loan. Once you become debt-free, you can focus on achieving other important life goals such as retirement, children’s future, foreign travel, etc. Early loan repayment can alleviate your financial burden, reduce stress, and set you free!
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