7 Smart Strategies to Repay Home Loan Faster

Managing and repaying your home loan faster, not only improves your financial stability, but can also save you money in the long term. This guide will provide actionable tips and strategies to help you repay your home loan faster, focusing on financial planning and efficient loan repayment.

Steps to Repay Home Loan Faster

1. Make Pre-Payments

Regularly making pre-payments towards your home loan can significantly reduce the outstanding principal. This not only shortens the loan term but also decreases the total interest paid over time. Aim to make at least one pre-payment each year if possible.

2. Opt for Higher EMIs

If your financial situation allows, increasing your Equated Monthly Installments (EMIs) can expedite loan repayment. Higher EMIs reduce the principal faster, thereby decreasing the interest burden over the loan's life. However, ensure that this aligns with your long-term financial plans.

3. Choose a Shorter Tenor

Selecting a shorter loan tenor can lead to higher monthly payments but will save you money on interest in the long run. This approach helps you clear the loan faster, allowing you to borrow again if needed while also improving your credit score.

4. Make a Larger Down Payment

If feasible, making a down payment of more than 20% can significantly lower your principal amount and reduce the overall interest burden. This strategy can lead to quicker loan repayment and less financial stress.

5. Consider a Balance Transfer

If you find a lender offering lower interest rates, consider transferring your home loan. This can help reduce your monthly payments and total interest paid, making it easier to pay off the loan faster.

6. Utilise Tax Benefits

Take advantage of tax deductions available under the Income Tax Act. Deductions on principal repayment (under Section 80C) and interest payments (under Section 24(b)) can reduce your tax liability, allowing you to redirect those savings towards loan pre-payments.

7. Avoid Missing Payments

Timely payments are crucial. Missing an EMI can lead to penalties and negatively impact your credit score, making future borrowing more difficult. Always aim to pay your EMIs on time to maintain a healthy credit profile. By adopting these strategies, you can effectively manage and expedite the repayment of your home loan, leading to a more secure financial future.

Are there Any Penalties to Repay Home Loan Fast?

There are no penalties for prepaying your home loan early in certain cases:

• If you have a floating rate home loan, banks and housing finance companies (HFCs) cannot charge any prepayment penalty, whether you are repaying partially or fully.
• For fixed rate home loans with HFCs, if you are repaying with your own funds (not by taking a loan from another bank/HFC), no prepayment penalty can be charged.

However, prepayment penalties may apply in some situations:

• For fixed rate home loans with banks, a prepayment penalty ranging from 1% - 2% on the outstanding amount is common.
• If you have a dual rate home loan (fixed rate initially, then floating), banks can charge a penalty only during the fixed rate period.
• For home loans taken by non-individuals like companies/firms, both floating and fixed rate loans attract prepayment penalties.

To avoid penalties, check your loan agreement carefully and discuss with the lender. Opting for a floating rate home loan is the best way to prepay without any charges. Making prepayments can significantly reduce your interest costs and loan tenure if your finances allow it.

How can I calculate my savings from repaying home loan fast?

To calculate the savings from prepaying your home loan, you can use a home loan prepayment calculator. This tool helps estimate the impact of making extra payments on your loan, allowing you to see potential savings in interest and changes in your loan tenure or EMI (Equated Monthly Installment).

Hypothetical Calculation

For instance, if you have a home loan of ₹50,00,000 at an 8% interest rate with a tenure of 20 years and you plan to make a prepayment of ₹5,00,000, the calculator might show:

• Remaining Principal: ₹45,00,000 after prepayment.
• New EMI: ₹37,605 (down from ₹41,882).
• Total Interest Savings: ₹5,07,921 over the remaining loan period.

Disclaimer: The above example is for illustration purpose only. Ujjivan SFB does not take any responsibility for the accuracy of the information. Please use an EMI Calculator or consult a financial expert for better understanding.