5 benefits of closing your home loan early
Who doesn’t want to live in their own home? A home loan is the best way to buy your first house. With a housing loan, you can buy your dream house while enjoying tax benefits on the loan repayments. However, it can also cause long-term financial stress, especially if the loan has a term of 20-30 years.
Here are a few ways to close your home loan as soon as possible.
1. Choose a Home Loan with a Short Tenure
A home loan with a longer tenure means you need smaller EMIs (equated monthly instalments). So, it’s a good option for those who can afford a small amount every month for the loan repayment. But, if you want to repay the loan faster, you should choose a loan with short tenure.
You can find home loans with a term of 10-15 years. Remember that short tenure means higher instalments. It works only if you can afford to pay the monthly instalments in time.
2. Home Loan Prepayment
Another way to reduce your loan term is by paying your loan instalments in advance. The RBI (Reserve Bank of India) has lifted the home loan prepayment charges burden for borrowers. This means if you pay a small part of the loan earlier than the due date, you will not be penalized.
Prepayment also helps in savings. It reduces the total interest payable on the loan (only for loans with a fluctuating interest rate).
Note: For the home loan part payment, a penalty applies to the fixed-interest home loans. So, it is a good option for borrowers with fluctuating interest home loans only.
3. Transfer Your Home Loan Balance to Another Bank
Home loan balance transfer means you can transfer the unpaid loan amount to another bank. You must be wondering why switch banks.
By transferring your principal balance to another bank, you can save money on interest payments. Here’s when you should switch your bank:
- Low interest charged by other banks
- Minimal loan processing fee
- Smooth and flexible repayment plan
- Additional benefits
With a lower interest rate, your monthly instalment will reduce automatically.
4. Make a Higher Down Payment
The down payment is the amount a borrower pays upfront on a home loan. The RBI has made it compulsory for every borrower to pay a small part of the property’s value when applying for a home loan. The down payment can range from 10% to 30% of the total loan amount.
For example, if a bank pays 85% of the total cost of your property, you pay the remaining 15%. This is called the down payment. Now, the higher down payment means you pay lower principal and interest in the long run. So, try to pay 25% to 30% of the down payment to lower your loan and interest payments.
5. Don’t Delay the EMIs
Pay your instalments on time. It will prevent late payment penalties and improve your credit score. If you can’t make the EMI payments in time, choose a housing loan with longer tenure and low EMIs. Make a habit of paying the instalments by the due date to avoid penalties due to delayed payments.