Getting a home of your own is a dream for many as it is the base of wealth build-up. To finance this dream, individuals often opt for house loans. It might sound easy but clearing up your house loan in the ideal tenure is not an easy task. One has to understand the algorithm behind house loans and then you are all set to boost your loan repayment. 

Before learning about the repayment boost techniques, let us talk about the basic concepts – the principal amount and the interest.

Principal simply means the original loan value that you received from the lender and interest is the amount that borrower has to pay along with the principal amount. 

For example, if you took a loan of Rs. 1,00,000 at 8% for one year, after the completion of one year, you will have to pay principal + interest, i.e 1,00,000 * 8 * 1 / 100 = 8000 = interest. Therefore, the total amount payable = Rs. 1,08,000.

The home loan interest rate can be categorized into two types – floating and fixed-rate interest. The fixed rate of interest remains fixed throughout the entire tenure of the loan whereas the floating rate of interest keeps on fluctuating according to the market conditions and provides the borrower with the facility of prepayments. 

Easy Ways to Repay Your Home Loan Faster

To repay the house loan without stressing about the monthly budget, the borrowers need certain tricks or strategies of repaying the loan in a minimum tenure. There are several ways to repay the house loan –

1. Maximum Down Payment – The first option is to pay the maximum down payment possible and take only the required amount as a loan. The principal amount will decrease and consequently, the total interest and EMI value will also reduce. 20% – 25% of the total loan amount should be paid as a down payment ideally. You can pay more, in case you have other sources of finance. You can also consider liquidating your investments that are not generating decent returns. This would be very helpful for you to reduce your debt burden.

2. Lower Rate of Interest – There are various banks and financial and non-financial institutions which offer house loans at varying interest rates. Before taking a loan, the most important step is to research properly before choosing a lender. The borrowers should also analyze the home loan interest rates according to their budget requirements. If your interest rate is low, it would be comparatively easy for you to repay the loan faster as compared to a loan with a higher interest rate. 

3. Additional Charges – Apart from a low rate of interest, another factor that you must consider while choosing a lender is additional charges. This includes processing fees, late payment penalties, etc. This might look like a minor addition to the amount, but they make a considerable difference. Therefore, look for a house loan with minimum additional charges.

4. Increased EMI – In case there is a hike in your salary after you get a house loan, you can use your additional income to pay a higher value of EMI, which will eventually decrease the tenure of the loan. Even a minimum increase in the EMI value can decrease the loan tenure significantly.

5. Part-Payments – If you have opted for a floating home loan interest rate, you can avail the facility of part payments. Paying the total loan in partial payment format can lead to a drastic reduction in your house loan amount. It is suggested to use bonus funds, gifts, or any unexpected income for part payments. Make sure you read all the terms and conditions issued by your lender regarding part payments.

6. Ideal Loan Tenure – The ideal loan tenure differs from person to person. In case you opt for a short loan tenure, the amount of EMI will be higher. This will result in a fast wrap-up of your house loan and the total amount of payable interest will be low. On the other hand, if the loan tenure is longer, the amount of EMI will be lower and you will not have to face any monthly burden. The house loan wrap-up will take more time and the total payable interest will also be higher. Choose the tenure which suits your financial planning. 

7. Falling Interest Rate – There are times when the RBI reduces the repo rate which leads to a reduction in the home loan interest rates as well. In such a scenario, you can either reduce the EMI value or the loan tenure. It is considered ideal to reduce the tenure and let the EMI value be the same to enjoy a fast wrap-up of your home loan.

8. Tax-Benefits – A house loan also comes with the facility of tax benefits. This enables the lender to save a significant amount of funds annually. Under the IT Act of 1961, a borrower can get a tax benefit worth Rs. 2,00,000 annually on house loans.

Using some of these easy tricks can help you clear your house loan in a minimum time frame enabling a hassle-free loan experience and opportunities for future savings.

Author Bio: Vinod Gill is a writer who specializes in writing content on Finance and Banking subjects. He is a Digital Marketing Consultant, Blogger, and Co-Founder of Ecompany.in