Home loan EMI is usually one of the largest outgoes for individuals on a monthly basis. With rising interest rates scenario leading to higher EMIs or longer payment period, it makes the situation even more diffi cult. So, people look for ways to fi nish the home loan quickly. Here are some ways one can repay a home loan faster by making changes in the payment cycle
Part payment at least once a year
One can make a lump sum part payment of the home loan at least once a year. A payment of 20-25% of the loan amount will reduce the home loan principal amount signifi cantly and will then reduce the EMI amount or the loan repayment period. Borrowers can plan making such lump sum payments at least once each year, maybe when they receive large payments, such as an annual bonus.
A slightly higher EMI
To start with, a borrower should try and choose a lender who offers the lowest interest rate and hence, a lower EMI. To add to that, one can still choose to pay a slightly higher EMI to reduce the home loan payment period. Borrowers can also choose to increase the EMI, by say 10% each year.
Choosing a lower payment tenure
The borrower can choose a lower tenure for payment. This will lead to a higher EMI, but will help the borrower reduce the interest burden on the loan. Also, the loan will get closed faster by following the tips stated above.
Points to note
- It is important to not miss a single EMI payment as this may attract a penalty. It can also affect your credit score negatively and make it difficult to avail further loans.
- Tax benefits are available for interest and principal payments, which can help the borrower save money that can be used to make part payments.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
