How To Close Home Loan Faster in India: Tips for Faster Repayment
Introduction: Owning a home is a significant achievement, and if you’ve taken a home loan to fulfill this dream, you might be eager to close your home loan quickly. Paying off your home loan ahead of schedule not only brings financial relief but also eliminates the long-term burden of EMIs. In this article, we’ll explore two effective strategies to achieve this goal: reducing your home loan interest rate and making additional payments. We’ll also provide answers to some frequently asked questions (FAQs) about home loan repayment.
Reducing Interest Rate on Your Home Loan
The interest rate on your home loan plays a crucial role in determining the total interest you’ll pay over the loan tenure. While you can’t control the broader interest rate trends, you can take steps to ensure you’re not paying a significantly higher rate than others. Here’s how to reduce your interest rate:
- Stay Informed: Keep an eye on interest rates offered by various banks. Be aware of what your friends, colleagues, and neighbors are paying for their home loans. If you find you’re paying a much higher rate, consider discussing this with your bank.
- Negotiate with Your Bank: Initiate a conversation with your bank about reducing your loan interest rate. Many banks are willing to negotiate, especially if you’re a responsible borrower with a good credit history.
- Consider Refinancing: If your bank is unwilling to lower the interest rate, explore the option of refinancing your home loan with another lender offering a better rate. This can result in significant interest savings over the loan tenure.
Pay More Than the Scheduled EMIs
Paying more than the scheduled EMIs is a proactive strategy to close your home loan ahead of schedule. Here’s how to make this approach work for you:
- Increase Your EMIs: You can start by increasing your EMI amount. Even a small percentage increase can have a substantial impact. For example, if your EMI is Rs 50,000, increasing it by 5% annually can significantly reduce the loan tenure.
- Make Regular Prepayments: Whenever you have additional funds available, such as annual bonuses, windfall payments, or proceeds from investments, consider making prepayments towards your home loan. These additional payments directly reduce the principal amount, accelerating the loan repayment process.
- Leverage Overdraft Home Loans: If you have an overdraft home loan, like SBI Maxgain, you can make prepayments as frequently as you want without restrictions. Since interest is calculated on the net loan amount (outstanding loan amount minus excess money), you can save on interest costs.
Illustrative Scenarios:
Let’s consider a few scenarios to understand how prepayments can impact your loan tenure:
Scenario 1: Increasing EMI by 1% Every Year
- Original Tenure: 240 months
- Revised Tenure: 206 months
Scenario 2: Increasing EMI by 2% Every Year
- Revised Tenure: 184 months
Scenario 3: Increasing EMI by 5% Every Year
- Revised Tenure: 145 months
Scenario 4: Increasing EMI by 10% Every Year
- Revised Tenure: 114 months
Scenario 5: Paying 1 Additional EMI Every Year
- Revised Tenure: 199 months
Scenario 6: Paying 2 Additional EMIs Every Year
- Revised Tenure: 171 months
Scenario 7: Reducing Loan Tenure with Additional Prepayments
In this scenario, let’s assume you have a 20-year home loan with an original tenure of 240 months and an EMI of Rs 44,986. You decide to make regular prepayments to see how they can help you reduce the loan tenure.
| Year | Original EMI | Revised EMI (5% Increase) | Prepayment (End of Year) | New Loan Tenure |
|---|---|---|---|---|
| Year 1 | Rs 44,986 | Rs 47,235 | – | 240 months |
| Year 2 | Rs 47,235 | Rs 49,597 | Rs 44,986 | 216 months |
| Year 3 | Rs 49,597 | Rs 52,077 | Rs 44,986 | 194 months |
| Year 4 | Rs 52,077 | Rs 54,681 | Rs 44,986 | 174 months |
| Year 5 | Rs 54,681 | Rs 57,415 | Rs 44,986 | 156 months |
By increasing your EMIs by 5% every year and making an additional EMI payment at the end of each year, your home loan tenure is reduced from the original 240 months to just 156 months. This approach demonstrates how a combination of higher EMIs and regular prepayments can significantly expedite your path to a debt-free home.
Frequently Asked Questions (FAQs)
Q1: Can I reduce my home loan interest rate after the loan is sanctioned? A1: Yes, you can. Many banks offer the option to switch to a lower interest rate during the tenure of your loan. Contact your bank to explore this possibility.
Q2: Are there any penalties for making prepayments on my home loan? A2: In most cases, there are no penalties for making prepayments on your home loan. However, it’s essential to check your loan agreement or contact your bank to confirm this.
Q3: How do I calculate the impact of prepayments on my home loan tenure? A3: You can use online home loan EMI calculators or spreadsheet software to assess the impact of prepayments on your loan tenure. These tools help you understand how regular prepayments can shorten your loan tenure and reduce interest costs.
Q4: Can I increase my EMI amount at any time during the loan tenure? A4: Yes, you can typically increase your EMI amount at any time during the loan tenure. Contact your bank to request an EMI increase, and they will guide you through the process.
Conclusion: Closing your home loan quickly is an achievable goal, and it’s essential to take control of your loan repayment. While you may not have much influence over interest rates, you can make a significant difference by paying more than the scheduled EMIs. Regular prepayments, even in small amounts, can lead to substantial interest savings
