Typically, a home loan lasts from somewhere between 5 and 30 years. For shorter home loan tenure, the EMI amount is higher but the interest outgo is lesser. Thus, in a shorter tenure, the cost of borrowing is lower and consequently, the overall property cost is reduced.
Therefore, if you have surplus income or better income prospects, it is wiser to reduce the home loan tenure and pay off the debt quickly.
As for new home loan borrowers, you can use these tips to reduce the home loan tenure before you apply for home loan.
Make a Larger Down Payment
RBI only allows lenders to provide easy home loans to cover 70%-80% of the property cost and the borrower finances the rest of the amount as the down payment.
If you make a higher down payment on your housing loan, then your principal loan amount will come down and subsequently, the interest amount on your EMI payments. Besides, a higher down payment will improve your home loan eligibility and chances of loan approval as your lending risk reduces.
Opt For an Overdraft Facility
If you have regular surplus income, then opt for an overdraft facility with your home loan account. Through the facility, you can deposit any surplus funds in the account along with the regular EMI amount; and as long as the deposit remains in the home loan account, it serves as a pre-payment towards the principal amount.
As you deposit additional payment in the home loan account, the overall principal amount reduces and consequently, the interest charged and the home loan tenure reduces as well.
Pay More EMIs
One easy way to reduce your home loan tenure and in effect, your interest cost is to pay more than the stipulated EMIs. By using the surplus amount towards the additional home loan EMI payment, you can reduce the burden of the debt.
Every year, you can pay more EMIs than mandated – a 5% hike each year can bring down both the home loan tenure and the interest outgo significantly.
As for existing home loan borrowers, you can use these tips to reduce the home loan tenure:
Go For Pre/Part-Payments
If you have surplus sum, you can make pre or part-payments on the housing loan albeit your lender allows it – some lenders levy a penalty on the pre-payment of the principal amount. By doing so, you can bring down the outstanding amount and lower the interest outgo on the EMI payments to reduce the home loan tenure.
Get a Home loan Balance Transfer
In a balance transfer, your outstanding home loan balance is transferred from your existing lender to a new lender, usually for lower interest rates. However, you can opt for a balance transfer to reduce the loan tenure while paying the same EMI amount. If unsure, use a home loan EMI calculator to estimate the new EMI amount.
A balance transfer usually depends on the following factors:
- Difference between the home loan interest rates offered by the old and the new lender
- The principal amount left unpaid
- The remaining home loan tenure
Undoubtedly, reducing the home loan tenure can bring down the overall cost of borrowing, as the interest outgo on the EMI payment reduces. So look for an appropriate tenure before applying for a home loan online.