home ownership is a significant life achievement. A home loan is often chosen by middle-class families wanting to fulfill their dream of owning a home. For them, a loan of this kind is a practical choice. Its 30-year term spans a significant portion of a person’s life. You must pay attention to various financial obligations if you have a home loan and want to pay it back. When your home loan has reached its maximum term, you may be asking how to prepay the loan sooner so that you can start concentrating on other financial obligations. Here are six wise methods for paying off your home loan early.
Make part payments
Your ability to repay the loan depends on your income and creditworthiness at the time. But as we all know, if your income grows over time, so will your ability to pay. Even if you take out a loan for the maximum period of time, you will be able to make more payments over time and pay it off before the term expires. Check the requirements for applying for a home loan and look at the banks that offer a prepayment facility so you can, where possible, pay more than the monthly payments.
Use mutual fund savings
After some time, investing in a mutual fund through a SIP can yield significant profits. This enormous money might very possibly be utilized to pay off your home loan early, shortening the loan’s term. You’d now have more time to concentrate on your other financial obligations. You can reduce your tax liability by investing in mutual funds.
Increase your EMI amount
You might be paying more in interest if you are currently making low EMI payments over a longer period of time. So, you will be required to pay more interest if the term is longer. You can get in touch with your lender and ask for a home loan restructure. By choosing a higher EMI, you can shorten the loan’s term, which will enable you to pay it off more quickly.
Additionally, step-up home loans are available for borrowers of home loans, allowing them to increase their monthly payments in accordance with rising salaries. You may be qualified for a bigger loan amount under step-up home loans than you would under a standard home loan, 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. Consider 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 home loan interest rate has decreased, this option can assist you in reducing your overall payback. Additionally, you have the benefit of renegotiating the tenure of your housing loan. To pay off the debt more quickly, you might shorten the term and raise the EMI.
Only if you do it early in your tenure will a balance transfer benefit you most. For instance, if your loan has a 20-year term, you should transfer your debt within the first two to five years. A switch 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.
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 housing loan is investing. The returns can be used in the future to pay off your home loan early. With your income and risk tolerance in mind, you can invest in a variety of financial instruments. You have the option of investing in stocks, fixed deposits, or mutual funds. Depending on your risk tolerance and tenure, choose an investment product. After five to ten years, you can prepay your home loan and save a lot of money by lowering the amount of interest owed.
A home loan with an overdraft facility
Some banks offer home loans that include an overdraft account. With this choice, the borrower can make additional deposits over EMI that will be counted as prepayments on the loan. When necessary, the excess money in the account can also be withdrawn. You can use this option if you wish to pre-close the loan more quickly.
You can prepay your housing loan by using the aforementioned advice. To reduce the amount of interest paid, it is essential to prepay the loan in the beginning. Because you would have already paid the majority of the principal and interest, paying it later won’t make much of a difference.