If you feel like your home loan is controlling your life while paying EMIs every month, you’re not alone. But is it really necessary to pay EMIs for 20-25 years? With some smart decisions and the right strategies, you can quickly get rid of this burden. Let’s learn about them…
Add informalnewz.com as a Preferred Source
Everyone dreams of owning a home. But many people may have to take out a home loan for 20 or 25 years to make this dream come true. Initially, the EMIs seem easy to manage, but over time, the burden becomes overwhelming. Many people wonder if it’s possible to repay this loan before the due date. The answer is yes…
The longer a home loan lasts, the more interest you pay to the bank. In the initial years, a large portion of your EMI goes toward interest, and the principal accrues very slowly. If you make prudent additional payments early on, the total cost of the loan can be reduced by lakhs of rupees. Furthermore, when the monthly EMI burden is reduced or eliminated, peace of mind automatically comes. This also makes planning for the family’s future, such as children’s education, investments, or retirement, easier.
Place the extra money in the right direction.
People often receive money like bonuses, increments, or tax refunds, which they spend. If this money is invested in a home loan, the principal balance rapidly decreases. Banks call this part-prepayment. The advantage of this is that the loan term is automatically shortened, significantly impacting the interest rate.
A small increase in EMI, a significant benefit
If your salary is increasing every year, it’s wise to increase your EMI slightly. For example, if you increase your EMI by 5 to 10 percent every year, the loan can be repaid several years earlier. This method is especially effective for those whose income grows slowly.
Loan Repayment through SIP: A Smart Way to Repay Your Home Loan Quickly
A SIP (Systematic Investment Plan) can also be a smart way to repay your home loan quickly. If your home loan has a low interest rate and you invest the same amount in a good equity mutual fund through SIP instead of making a direct prepayment, the long-term returns can exceed the loan interest. Once the fund has established a good corpus, you can make the prepayment using that amount. This way, you can repay the loan faster and also benefit from additional investment income.
Small Steps, But Effective Results
You don’t necessarily need to make a large deposit at once. Even a small prepayment once or twice a year can make a big difference. Small prepayments made during festivals, year-end, or from additional savings can significantly reduce the loan tenure.
Keep an Eye on Interest Rates
If market interest rates are falling and a cheaper loan is available from another bank or NBFC, you might consider transferring your home loan. This could reduce your EMI or provide an opportunity to repay the loan early. However, it’s important to understand all the charges and terms before transferring.
Know Some Important Precautions
While it’s good to repay your loan quickly, it’s not wise to throw away all your savings. It’s important to have a separate fund for medical emergencies or other unforeseen events. Also, check if there are any prepayment charges on your loan. Neglecting investments and insurance is also not a good idea; maintaining a balance is crucial.
