Home Loan: Know those 3 smart ways which will finish the loan quickly and also help you save lakhs of rupees.

Buying your own house is a dream, but a 20-30-year-long home loan seems like a burden. Here are 3 smart ways that can be very helpful in ending your home loan before time.

When the dream of owning a house comes true, there is no limit to happiness. But often a long home loan of 20 to 30 years is also attached to this dream. More than half of our salary is deducted in EMI and there is always a tension in the mind. Have you ever thought that while paying the full price of the loan of Rs 50 lakh that you take, you pay almost the same amount of interest to the bank?

But don't panic. There are some smart ways, by adopting which you can not only finish your home loan years earlier, but can also save lakhs of rupees of interest to be given to the bank. Know about 3 such methods which will help you in finishing your home loan before time.

1. Increase your EMI every month (The Power of Small Steps)

This is the easiest and most effective method. All you have to do is pay a few thousand rupees more than your fixed EMI every month. Suppose, your EMI is ₹40,000, then try to pay ₹45,000 every month. This additional ₹5,000 will directly reduce your principal amount.

When the principal amount is reduced, the interest charged on it also automatically reduces. This makes your loan end much earlier than expected. Every year when your salary increases, increase your EMI amount by 5% to 10%. You will not even know and your loan will end years earlier.

2. Make a prepayment once a year (The Bonus Punch)

Most of us get Diwali bonus, incentive or any other extra income once a year. Often we spend this money. The next time you get such money, deposit it as a prepayment in your home loan. Prepayment means that you give a lump sum amount directly to reduce your principal. Making an extra payment equal to one EMI to the bank once a year makes a huge difference in your loan tenure. This method is best for those who cannot increase the EMI every month, but can arrange a large amount once a year.

3. Home loan balance transfer (The Smart Switch)

Do you know that you can transfer your home loan from one bank to another? This is called home loan balance transfer. If you took a loan at 9.5% a few years ago and today another bank is ready to give you the same loan at 8.5%, then this can be the icing on the cake for you. Even a 0.5% to 1% reduction in the interest rate can save you lakhs of rupees. Yes, there is some processing fee involved, but that is nothing compared to the long-term savings. But before taking this decision, just make sure that your loan tenure is more than 5-7 years, only then will you get the full benefit.

Frequently Asked Questions (FAQs)

1. Is there any charge for prepaying a home loan?

If your home loan is on a floating rate, then as per the rules of the Reserve Bank of India (RBI), the bank cannot charge you any prepayment penalty or charge. There may be some conditions on fixed rate loans.

2. Should I invest the extra money I have received or should I prepay the home loan?

This is a big question. The rule of thumb is – if the return on your investment (after tax) is higher than the interest rate of your home loan, then it is better to invest. If not, then prepayment is more beneficial as it gives you guaranteed savings.

3. How many times can I make prepayments in a year?

Most banks do not have any limit on this. You can make prepayments as many times as you want in a year. If you want, you can make a small prepayment every month as well.

4. What is the best time to repay a home loan?

Prepayment is most beneficial in the initial years of the loan because at that time the biggest part of your EMI is going as interest. Even a small prepayment made in the initial years leads to big savings in the end.

5. Should I reduce the loan tenure or the EMI?

When you make a prepayment, the bank gives you these two options. Always choose the option of reducing the loan tenure. Reducing the EMI will immediately reduce the burden on your pocket, but reducing the loan tenure will result in much greater total savings on interest.