Trick to Pay off Your Home Loan Faster

By Hope Huntley 4 years ago

You wanted to own a house, that dream is fulfilled and you are happy about that, excellent. But somewhere at the back of your mind, you wish to become debt-free as soon as possible if you have taken a home loan. It is believed that long term liabilities increase the financial burden, as the home loan often stretches up to 15 to 25 years for most of the borrowers. The most ideal way to be debt-free is to indulge in a few good financial habits which will also help you save money as in longer loan tenure, the borrower ends up paying more than the principal amount at a higher rate of interest. One of the most convenient ways to get free of financial stress is to repay the home loan faster, here are a few tricks which you can follow to do the same:-

  • Make a Part-prepayment

If you have received surplus funds which you may have received either from bonus or promotion you should make part payment. The part payment will reduce the principal amount as well as it will bring down the EMI amount also. If you opt for floating interest rate home loans then you will also not have to pay a penalty for prepayment. While applying for a home loan check with your lender if they have this facility.

  • Pay Downpayment More Than 20 percent 

Making more down payment will automatically reduce your principal amount. Reduction in principal amount will definitely keep the financial burden at bay. Depending on your finances it is advisable to make at least 20 percent – 30 percent of your loan amount as a down payment. 

  • Switch To Lower Home Loan Interest Rate

If you have taken a home loan it is advisable to keep a check on interest rate which other lenders are providing. If any other lender is providing a loan at a better interest rate than you transfer your loan to that bank, this way you can enjoy the lower EMI and other related benefits.

  • Select Short Tenor

Selecting a shorter loan tenure is a better option because you will be able to pay off the loan quickly. This way you might have to pay a higher amount of EMI but if you choose a longer loan tenure then you will end more amount of interest. Paying your loan off in a shorter period will also improve your credit score and you can apply for a loan again if needed.

  • Lease Your Other Property

If you have another property, which isn’t being used. You should rent that property to pay your EMI or make a prepayment of your loan. You can utilize that lease sum against your credit, be it a little segment, however, it will help in gaining some more cash. 

  • Open offset account

To bring down the interest of rate on your home loan you can open an offset account which will eventually bring your EMI down and help you pay loan faster. An offset account is like a bank account which is linked to your home loan. You can get your salary deposited into the account and set up direct debits for any bills. After opening the offset account you will receive a debit card from your home loan lender, which can be used to make everyday purchases. 

For example:- If you have taken a home loan for Rs 20,00,000 and leave Rs 30,00,000 as the total amount. If you have put Rs 5,00,000 in an offset account then you will only be charged interest on Rs 25,00,000 of the variable portion. Higher the amount in offset account lower the interest rate charged.

Bottom line: Having a debt free home is an amazing feeling. Being debt free is not a rocket science you just need to take some wise decisions like making pre payment, making more downpayment to have life which is free of financial burdens.