Owning a home is a goal for the nation's lower- and middle-income earning groups. The most practical way for these people to purchase a home and make payments over their lifetime is through a home loan. A 30-year home loan's maximum term represents a sizable portion of a person's life. When your house loan's maximum term is up, you might be wondering how to repay the loan sooner so you can start focusing on other debts.
Here are six smart ways to pay off your home loan early.
Make partial payments to shorten the loan's term.
To pay off your home loans early, you don't need to win the lottery. With your savings, raises, bonuses, additional income, etc., if you took out a home loan in your early 20s or 30s, you can pay it off in 8 to 10 years. You can pay back a portion of your home loan, which will help you pay less in interest and shorten the length of the loan.
You might be wondering now if all lenders enable you to make a partial payment. Before requesting a loan, you should inquire with the lender about the possibility of making partial payments. Learn how many part payments are permitted during a fiscal year as well.
Use your mutual fund savings to make prepayment
After some time, investing in a mutual fund through a SIP can yield large profits. For instance, you have a home loan with a 25-year term and a 25 lakh loan amount. You are also routinely making an investment of Rs. 5000 each month. You would typically receive a return of Rs. 24 lakhs after 15 years. This enormous money might very possibly be utilized to pay off your home loan early, shortening the loan's 10-year term. Isn't that wonderful? With extra time on your hands, you may focus on your other financial duties. Mutual fund investing can also enable tax savings.
Increase your EMI amount
If you are currently making low EMI payments over a longer period of time, you may be paying more in interest. If the term is longer, you will be obliged to pay more interest. You can speak with your lender and request a restructured home loan. You can reduce the loan's term by selecting a larger EMI, allowing you to pay it off faster.
Additionally, step-up home loans are offered to home loan borrowers, allowing them to raise their payments on a monthly basis in line with increasing income. You may be qualified for a bigger loan amount under step-up home loans than you would under a standard home loan in India, allowing you to purchase your dream home.
Home loan balance transfer
Due to your low income or average credit score, you might have taken out a home loan with a higher interest rate. You can think about moving the remaining debt on your house loan to a different lender who offers you a lower interest rate if your credit is currently in excellent standing and you have a higher monthly income. Given that the interest rate has decreased, this choice may enable you to make fewer overall payments. Additionally, you have the benefit of renegotiating the length of your home loan. You might reduce the term and increase the EMI to pay off the debt more rapidly.
Only if you transfer your balance early in the tenure will it function best for you. For instance, you should transfer your debt within the first two to five years if your loan has a 20-year term. A changeover won't help you once the tenure has reached the halfway point because you would have already paid a significant amount in interest. You should also be aware that the new lender will charge processing fees, and the previous lender will impose prepayment fees.
Investments to prepay home loans
One of the better solutions that might provide you with higher returns at an interest rate that is comparable to the interest rate on a home loan is investing. The returns can be used in the future to pay off your loan early. Consider that you have a monthly income of Rs. 50,000 and are able to save at least Rs. 5000 every month. This sum can be invested in a variety of vehicles, including mutual funds, stocks, RD, FD, PPF, and post office savings plans, among others.
The home loan may be prepaid after a duration of five to ten years. By lowering the loan's interest payment for the remaining term, you can save a lot of money.
A home loan with overdraft facility
Some banks offer housing loans that include an overdraft account. The borrower has the option to select this and make additional payments over the EMI that will be recorded as prepayments on the loan. The extra funds in the account can also be taken out as needed. You can select this alternative if you wish to pre-close the loan more quickly.