Home loans are one of the most significant financial commitments that individuals make in their lives. The tenure of home loans in India is available from 5 years up to 30 years.
While home loans offer a convenient way to purchase a house, they can also put a significant financial burden on the borrower for an extended period. And that’s why rising current home loan interest rates are a big worry for all home loan borrowers. Therefore, it’s natural for borrowers to want to close their home loans as soon as possible.
In this article, I will discuss 9 strategies on how to close home loan early.
Table of Contents
9 Strategies: How to Close Home Loan Early Or Repay Home Loan Faster
1. Transfer of outstanding home loan
One of the most effective ways to fasten home loan closure is by transferring your outstanding home loan to another bank. We Indians, as home loan borrowers, can switch our home loans from one lender to another to avail of better interest rates or other favorable terms. A balance transfer transfers your home loan’s outstanding principal from one bank to another, usually for a lower interest rate.
By opting for a balance transfer, you can reduce your interest rate and save money on interest. You can also opt for a shorter loan tenure for a balance transfer, which can help you fasten home loan closure.
2. Home Loan Options with EMI Waiver
A few lenders provide an option of a specific number of EMIs waived off when you pay your EMIs regularly. While taking a new home loan or transferring the outstanding principal to another bank, try to look for a bank that provides an EMI waiver option. Also, check the processing fee and other specific conditions to ensure it aligns with the different lenders and that you are not paying a higher charge by opting for this option.
For example, Axis Bank has 12 EMIs waiver options upon regular EMI payment. Please research, look for a few more lenders that provide EMI waiver options, compare other features, and then opt for the bank that suits you.
3. Make Prepayments
Making prepayments is another effective strategy to speed up home loan closure. Apart from your regular EMI, prepayments are the additional payments for your home loan. Per your financial capability, you can make prepayments at any time during the loan tenure. Prepayment need not be a significant amount, but a regular, even a smaller prepayment can help significantly —for example, prepayment once a year. By making prepayments, you can reduce the outstanding principal amount, reducing the interest component of your EMI.
Making prepayment can help you save significant money on interest over the loan tenure and fasten the home loan closure. When taking or transferring the home loan, ensure you go through lender prepayment conditions and negotiate the early prepayment option without penalty.
4. Opt for a Higher EMI
Another excellent option to help close your home loan is to opt for a higher EMI; this means you increase the monthly amount you pay toward your home loan. By doing this, you can reduce the overall interest cost and the loan tenure.
However, before opting for a higher EMI (equal monthly investment), you must ensure you work on your cash flow well (Income & Expenses) and keep a decent cushion so that you don’t go very tight on your cash flow and can afford the increased EMI.
📖Must Read: Money Management Tips to Increase Your Savings
5. Opt for a Shorter Tenure
Opting for a shorter loan tenure is another way to speed up home loan closure. A shorter term means a higher home loan EMI, which can help you save on interest costs and close the loan faster. However, you must ensure enough surplus income to afford the higher EMI.
This option can be opted for in three ways:
- 🔹By increasing the EMI in the same bank.
- 🔹Transferring the outstanding balance to another account and opting for a shorter term.
- 🔹By making prepayment of the outstanding home loan.
6. Increase Your Income
Increasing your income is another effective way to fasten home loan closure. You can afford to make higher EMI payments and prepayments by earning more money, reducing the loan tenure, and saving on interest costs. You can increase your income by switching jobs, working part-time, freelancing, or starting a side business.
7. Take Advantage of Tax Benefits
In India, home loan borrowers can avail of tax benefits on the principal and interest paid toward the home loan. By taking advantage of these tax benefits, you can save a significant amount of money on taxes and use the savings to make prepayments towards your home loan, which can reduce the loan tenure and save on interest costs.
8. Use Your Bonuses and Tax Refunds
Whenever you receive a bonus or a tax refund, you can use it to make prepayments toward your home loan’s outstanding principal.
9. Planning for a Higher Down Payment
If you are a young salaried professional and owning your own house is one of your crucial financial goals, it would be best to start working towards accumulating a down payment from today. The idea is to make a maximum down payment and take no or small home loans.
The biggest mistake any working professional can make is taking a loan at the beginning of their career, which makes individuals pay a high-interest rate for a longer home loan term, which leads to no investment for your other goal. Taking a home loan for a tax saying is the biggest myth.
Important Calculators
Steps to Transfer Home Loan from One Bank to Another
Step#1: Finalise new lender
Finalize a new lender with your research or a financial adviser’s help.
Step#2: Apply for a loan transfer with a new lender
After talking to the new lender, once satisfied, then the borrower must apply for a loan transfer with a new lender. You can either apply online or, most of the time, lender executive offer help then you can apply for the same offline.
Step#3: Inform the existing lender
The next step is to inform the existing lender about your loan transfer decision.
Step#4: Obtain documents from the existing lender
The borrower must obtain all essential documents from the existing lender, like property paper.
Step#5: Obtain a consent letter from the existing lender
The borrower must obtain a consent letter from the existing lender with details like outstanding principal, property details, etc.
Step#6: Foreclosure of loan account
The next step is to apply for foreclosure of the existing loan account. The new lender will pay the outstanding loan amount after receiving a consent letter from the existing lender. The new lender will then get possession of property documents, and the old account will be permanently closed.
Step#7: Sign a new loan agreement
Now borrower must sign a new loan agreement with the new lender. All terms and conditions, including interest rate, repayment tenure and outstanding loan amount, and preclosure loan condition, are to be mentioned in the agreement.
Conclusion
There are various strategies that can help you fasten home loan closure. However, choosing the strategy that suits your financial capability and goals would be best. You must ensure that you have enough surplus income to afford the higher EMI or prepayments. By following these strategies, you can reduce the loan tenure, save on interest costs, and become debt-free faster. If you still need assistance, you must help an expert in financial planning who will help you strategize your debt management and help you achieve your financial goals.
