Home loan repayment planning made easy
Are you servicing a home loan for a few months/years? We guide you on repaying it faster.
Buying a home in a hugely expensive real estate market is a Herculean task at the moment. Despite demonetisation and now the implementation of GST, home loan prices are showing no signs of correction. But post-demonetisation, premier housing finance entities like SBI, Punjab National Bank Housing Finance Limited (PNBHFL) and HDFC have revised the home loan interest rates to 8.6%.
The lower the interest component of the home loan, the more affordable the loan becomes. Once you take the home loan, you repay it in terms of Equated Monthly Instalments (EMIs). You can take a longer tenure and fixed rate of interest to lower the EMI component. The EMI is auto-deducted from your bank account every month.
You need not wait out the entire loan tenure to repay the loan in full. Your housing finance company gives you the freedom to periodically ‘pre-pay’ the home loan. For example, you can pay the monthly EMI of say, Rs 20,000, and also make a repayment of Rs 50,000 if you have surplus money.
Why repay a home loan earlier?
The EMI you pay every month includes the principal component + the interest on it. If it is a long term loan, of 15 years or more, the lending institution takes only the interest in at least the first year of repayment. By the end of the loan’s tenure, you end up repaying much more money than you originally borrowed from the housing finance company. Thus, it is always more prudent to bring down your overall repayment amount by making periodic repayments over and above the monthly EMI.
How to repay a home loan faster
Regular home loan repayment of incremental sums of money takes planning and commitment. But if you stick your repayment plan, you can get away from the home loan repayment much faster than anticipated. Here’s a simple guide to quicker loan repayment:
Save money every month. To pay money, you must save money. Saving money every month will result in a periodic chunk of money at your disposal. You are allowed to pay even Rs 10,000 per month apart from your EMI. Or you can save diligently and repay a higher sum of money every six months.
Transfer your loan. If your current loan is being charged a rate of interest higher than that of some other lending institutions, you should ask for a rate revision. If your lender does not revise the rate, you can transfer your loan to another lender. Find out the conversion fees, transaction costs and new rate of interest with the new housing loan agency before you make the transfer. If the transaction is going to cost the same or more than the current loan you are servicing, then it is better to not effect the transfer.
Monetise the property if you are not using it. You may have purchased the house as an investment and not to live in. instead of keeping it vacant, it is better to lease it out. The rental income can pay part of your EMIs, so the overall burden on your income is eased.
Repay this loan last. The home loan is more affordable than other loans such as personal loans, mortgage loans and credit card loans. Having a home loan gives you a good credit score if your repayment is regular. If you have multiple loans, it is better to pay off the other loans and keep home loan repayment for last.