By Homeownership is a fulfillment of a dream, while the long commitment to a home loan is somewhat depressing. While enjoying your new space, that interest clock goes ticking. Wouldn’t it sometimes be wonderful to throw off that debt and become freer, financially speaking?
If you are looking for how to fast-track your home loan repayment while saving thousands in interest, you have come to the right place. Here are five smart strategies that will ensure you conquer your mortgage and embrace financial flexibility:
1. Prepay Whenever Possible: Small Amounts, Big Impact
This is the power of prepayments: You can be reasonably certain that in effecting small payments beyond the paid EMI, the overall loan tenure is going to be shortened together with the interest burden.
How do you do this?
Lump sum payments: These may be one-off extra payments made from bonuses, tax refunds, or some windfall cash.
Increase your EMI: Upscaling your monthly payments slightly, by even 5-10%, can create a big difference.
Regular prepayments: Set up saving a fixed amount on a monthly or quarterly basis to prepay on top of your regular EMI.
Why it works: The principal amount gets reduced right away, subsequently lowering interest on the outstanding balance.
2. Set Annual Increments in Line with Salary Growth
Whenever your salary increases, increase your EMI accordingly as well, since this makes very comfortable sense for increasing payments without straining your budget.
How to do it:
Decide the percentage increase to your EMI every year, in line with your salary increment (say about 5-10%).
Inform the lender of your intention to step up your EMI.
Why it works: The increased earning capacity gets harnessed for repaying faster without shocking the budget.
3. Reduce the Loan Tenure: Less Interest, Less Time
A higher interest amount is reducible if the shorter loan tenure is selected at the time of the loan initiation. However, even if you realized that reduction during the tenure of your loan, you could still go for a change in time.
How to do it:
While taking the loan, choose the shortest loan tenure that is affordable for you after considering your financial capacity, if that is PAYABLE.
In case of existing loans, you may consult your bank to check on shortening of loan tenure provided that the EMI would still remain affordable.
Why it works: A shorter tenure means lesser interest payments, thus huge savings over the life of the loan.
4. Balance Transfer: Seek Lower Interest Rates
If interest rates are now lower than when you first borrowed your funds or if you have found a better deal from another lender, this option is considered.
How next:
Check rates at various lenders and compare.
Keep in mind the processing fees and other costs involved with constituting the transfer.
Make sure the expected benefits exceed the costs of transfer.
The reasoning behind this: Lower interest means lower payable each month and lesser interest paid overall.
5. Keep the Necessary Prepayment Fund: In an Organized Fashion
It is wise to keep home loan prepayments in a separate savings account or fund. This keeps you organized and calms your prepayment goals.
How next:
Preferably have an automatic transfer to a prepayment fund each month.
Treat this fund as holy: Do not withdraw money for any other expense.
Check the progress on this fund and celebrate any milestone that shall keep you motivated.
The reason why this is effective: A fund is a kind of visual representation that allows progress to be identified, inducing discipline in repayment.
You are Better Off Financially!
Faster repayment of a home loan is one step toward financial freedom. These smart techniques will save you thousands in interest payments, shorten your loan lifetime, and give you more financial options. Discipline and consistency are your watchwords. The sooner you begin, the sooner your dreams of never being in debt will be realized!