7 Smart Ways to Pay Off Your Home Loan Quickly

What if there are smart ways to pay off your home loan quickly, well it would be fantastic, right? To a lot of people a home loan is a big financial commitment. Even though a home loan helps people own a house in a locality they want, and as per their budget. It is still a financial burden. Because the interest paid over the years can be massive. By using smart repayment plans, home owners can cut their debt sooner.

7 Simple Ways to Close Your Home Loan Faster

Here are 7 Smart Ways to Pay Off Your Home Loan Quickly

1. Increase Your EMI Slowly: 

That’s right when your salary goes up, think about increasing the EMI amount. Even a small increase can cut the loan time and total interest. For example, if a person's EMI is INR 30,000. If they add INR 3,000 to it every year, the savings over 20 years can be huge.

Take a real case. A buyer takes Rs. 80 lakh at 9% for 20 years.

The difference is huge. Just Rs. 7,000 extra in the first year, Rs. 7,700 in the next, and so on- it wipes off more than 7 years.

Why does it work? Because in the first few years, almost 70% of the EMI goes only to interest. When a borrower prepays early, the entire extra amount hits the principal directly. That brings down the principal for all future months, not just one.

2. Prepay When You Can: 

If possible, always try and make a prepayment on your home loan. A prepayment of a home loan means paying a lump sum. This is more than the normal EMI. You may use things like a bonus, a work payment, or any extra money. The best part is that banks will not charge fees for prepaying floating-rate loans, especially as per the latest RBI guidelines.

3. Choose a Shorter Loan Time at the Start: 

When getting a loan, it's best to pick a shorter time if possible. Of course, the EMI will be bigger. But the total interest paid will be much smaller. However, you must also keep your ability to pay the home loan installment before picking a shorter time frame.

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4. Use the Step-Up EMI Option:

This is one option that some banks offer. The EMI under this increases at set times. It happens every year. This matches how income grows over time. It helps pay back the loan faster.

5. Move to a Lower Interest Rate: 

This is another smart option. Always keep an eye on the interest rates. If they fall, think about moving the loan to a new bank. This process is called a home loan balance transfer. However, you must carefully look at all fees and other charges before moving your home loan.

6. Pay One Extra EMI Every Year: 

If prepayment is not possible for you then you may try to pay at least one extra EMI a year. This simple step can help cut down the loan time. Plus, it will also save money on interest in the long run.

7. Make the Down Payment Big: 

The more you pay as a down payment when buying a house the more beneficial it is. Because this will reduce your borrowing. This will reduce your home loan amount and you can make the payment faster. A higher down payment reduces both principal and interest. It will also make you a lower-risk borrower in the lender’s eyes. Thus, earning a benefit in percentage of interest for your loan. The best amount for down payment is around 30 to 40% of the property’s value.

Tax Impact of Early Closure

Closing the loan early feels good, but it has a tax side that many miss.

Here is how it works for most salaried buyers:

• Before 5 years: If he claimed principal under 80C and closes or sells before 5 years are up, the whole deduction claimed so far gets reversed. It gets added back to his income in the year of closure.

• After 5 years: No reversal, but the yearly tax benefit stops. He will no longer get:

• Up to Rs. 1.5 lakh deduction on principal under Section 80C

• Up to Rs. 2 lakh deduction on interest under Section 24(b)

So what should he do?

If his home loan rate is 9% and he is in the 30% slab, his effective cost of loan is actually around 6.3% after tax saving. If he can invest that extra cash somewhere at 10-12%, it may make sense to invest and not prepay aggressively.

Summing up on Smart Ways to Pay Off Your Home Loan Quickly

By using these seven smart ways to pay off your home loan quickly can bring you great relief. By using these methods you can be debt-free much faster than the original loan time. Smart home loan repayment planning and a little discipline is all it takes for this work.