Effective Strategies for Paying Off Your Home Loan Sooner

Published on 04 June 2023

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If you have a home loan and want to pay it off before its full term, prepaying your home loan can be a smart financial move. Not only does it help you become debt-free faster, but it also reduces the total home loan interest rate you'll pay over time. Here are some smart ways to prepay your home loan:

1. Increase your EMIs Gradually: One effective strategy is to gradually increase your Equated Monthly Instalments (EMIs) each year. Initially, when you might have less income, you may have opted for a longer tenure to keep your EMI affordable. However, as your income grows, you can consider increasing your EMI by a certain percentage annually. Calculate your payable EMI using an EMI calculator and evaluate how much amount you can increase. This can significantly reduce your loan tenure.
   
   For example, if you have a ₹50 lakh loan at 7% interest for 20 years, with an EMI of ₹38,765, increasing the EMI by 10% annually could help you close the loan in 9 years and 11 months, while a 5% annual increase could lead to closure in 12 years and 6 months.
   
   An EMI calculator can be of good use to understand the best outcomes of increasing your monthly payables.
2. Consult your Lender: Check with your lender if they allow you to increase your EMI annually. You can also use online prepayment EMI calculators to see how much interest rate and time you can save by prepaying your home loan.
3. Prepay a Fixed Amount Annually: Another option is to prepay a fixed sum at the end of each year. For instance, if you have a ₹50 lakh loan for 20 years at 9% interest, with a monthly EMI of ₹44,986, adding a fixed sum annually, like ₹3 lakhs, could help you pay off your home loan in 9 years and 3 months.
4. Invest to Prepay: You can also consider making investments to accumulate a corpus to prepay your home loan. Depending on your risk appetite, you can choose between fixed-return instruments like bank FDs or market-linked products like mutual funds to earn returns and prepay your loan.

Before opting for any of these strategies, ensure you understand the prepayment rules of your home loan. It's advisable to discuss your options with your lender and carefully review the terms and conditions before making any decisions.

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