The easy availability and increasing number of lenders offering competitive interest rates on housing loans have made it relatively easy to own a house and achieve your goal of being a homeowner. While owning a home undoubtedly provides a sense of security, a housing loan is a long-term debt. Therefore, it is of utmost importance to choose the right lender who offers the lowest home loan interest rate possible. In addition, you need to accurately assess your repayment capacity and choose the right EMI amount and repayment tenor. Besides, it is important to plan to partially prepay the loan in intervals to save on your interest outgo and become debt-free faster. A prepayment basically refers to any amount you pay towards your loan that is over and above the EMIs you are paying.
Part-prepaying your home loan reduces the overall cost of the loan, helping you save big on your interest payable. However, prepaying your home loan does not just entail paying extra as and when your finances permit. Instead, use a home loan prepayment calculator and carefully deliberate to increase your interest savings significantly and reduce your housing loan tenor.
Here are some smart ways to help you systematically prepay your home loan.
Make lumpsum prepayments using surplus income
One of the efficient and smart ways to prepay your home loan is to divert your windfall gains towards your home loan repayment. These gains can include yearly bonuses, payouts received at maturity of investments, unpredicted profits and incentives. Using these funds, you can make a lumpsum prepayment towards your housing loan, helping you pay off the bulk of the loan principal amount, significantly reducing your tenor and thereby your interest outgo.
For instance, if you make a lumpsum prepayment of Rs.4 lakh to your home loan of Rs.20 lakh at a 12% interest rate with a repayment tenor of 20 years, then you save 20% on your EMI outgo, reducing your EMI amount from Rs.22,022 to Rs.17,617. Furthermore, your repayment tenor reduces to 131 months from 240 months. Similarly, you can easily calculate EMI savings for various prepayment amounts using an online home loan prepayment calculator.
Make fixed yearly savings to prepay the loan
Set a yearly prepayment target and ensure that you save every month to meet this target. You can also use investment tools such as a recurring deposit and fixed deposit with short tenors and divert the returns towards prepaying your home loan. This will reduce your EMI outgo in the following months as well as the repayment tenor.
Restructure the loan to increase EMIs when your income increases
Any increase in income should be diverted towards increasing EMI payments. This may happen when your salary increases with time and you can talk to your lender about restructuring your home loan. This will help you maintain a healthy income-to-debt ratio, ensuing you repay the loan at the earliest. Increasing your EMI with an increase in your disposable income will not only ensure early repayment but also prevent you from making unnecessary expenses with an increased salary.
Do not opt for pre-EMI plans
Many lenders and builders offer pre-EMI plans as a way to help you manage your home loan repayment. Though lucrative, avoid choosing this plan unless you have severe cash flow issues. This is because, under this plan, you only pay interest-only EMIs until you shift into your new home. Regular EMI payments (interest + principal) only kick in after you have moved to the new house, not reducing your principal amount one bit. On the other hand, paying regular EMIs from the start ensures that the cost of the loan reduces in the long run, giving your significant benefits, especially when you make a lump sum prepayment.
Choose loan overdraft facility
Besides choosing a lender that offers the lowest home loan interest rate and simple housing loan eligibility, you must also ensure that you choose a lender that provides a loan overdraft facility. Using this financial service, you can deposit any remaining amount after paying your EMI for the month in the loan account, with the freedom of withdrawing it when required. This helps you enjoy more flexibility, especially during times of a cash crunch.
Armed with this information and using a home loan prepayment calculator, you can easily enjoy a favourable borrowing experience. To add to that experience, opt for a Bajaj Housing Finance Limited Housing Loan that levies no charge on part-prepayment or early foreclosure of the loan, if you’re an individual borrower on a floating interest rate, ensuring easy repayment without burning a hole in your pocket. Furthermore, with this housing loan option, you can avail of a high loan amount you can easily repay over a flexible tenor of 30 years. Additionally, you can avail PMAY benefits, an ample top-up loan and property search services, ensuring a comfortable and hassle-free borrowing experience. With it’s simple housing loan eligibility criteria, you can easily apply online for a housing loan from the comfort of your home.