After all of the festivities, housewarming parties, desserts, and presents, the moment has come to pull up your pants and prepare to pay your mortgage. If you have taken out a house loan to purchase a family home, it is critical that you have the finances to settle the EMIs on time. It is vital not just in the aspect of your loan, but late and missed payments will raise your financial burden. It is a wonderful feeling of living in your own house, but it is extremely tough to retain the same level of self-esteem and financial resources in order to repay a home loan over a longer length of time. You must have had the mortgage loan for a minimum 10-15 years and set up a particular amount to repay it during that time.
In addition to the original amount, you wind up paying a bigger payment in the form of interests in the long term. If you borrow a loan for even more than 20 years, you may wind up spending roughly the same amount, if not more, in interest.
For example, Samarth Jain, who works for an IT business, borrowed Rs. 30 lakhs at 9.9 percent from a reputable bank for a 20-year period. His EMIs are Rs. 28,752 per month. However, when he computed the total expenditure as interest just on loan amount, he was astounded to see that he would be repaying Rs. 39,00,519 in total interest. It plainly demonstrates that if you obtain a loan over 20 years or longer, you will pay higher interest on the loan.
As a result, most banks will advise you to take out a longer-term loan. They will show you the cheapest EMI but not the whole exponential rise out of your principal amount. Although most major banks are giving attractive interest rates and flexible financing alternatives in order to attract more consumers. However, even a minor variation in interest rates might have a long-term influence on your entire outlay. If you have a loan for a prolonged length of time, simply compute your overall outgoing interest, not just your monthly EMIs. Try to repay your home loan faster and end your debt as soon as possible. Here are some creative ways to repay home loan faster.
- Make advance payments
Let’s have a glimpse at a few potential prepayment methods. Assume you received a bonus in the 11th month of your first year of loan. You decide to pay an additional Rs 35,000 in advance. Now, if you choose to do this every year, you can see what kind of a difference a frequent prepayment (only once a year) makes.
Prepaying a house loan is one of the finest ways to put any extra cash or windfalls, such as promotions, inheritance, cash gifts, and so on, to good use. As a result, the existence of such cash may be a factor to consider while part-paying your mortgage. Indeed, because variable rate house loans may experience an increase interest – rate revisions or a significant decline in the borrower’s credit score at any moment throughout the loan lifetime, it may be a good idea to make as many part-prepayments as feasible when the appropriate home loan interest rates are so low and your credit score is strong.
You might also consider part-paying your mortgage when the rate of interest is higher than the rate of return you could receive on that amount if invested in securities that match your risk tolerance and liquidity needs.
During the first few years of the loan, a larger amount of your EMI is used to service the interest, while just a small fraction is deducted from the principle. However, at a later time in your loan’s life, a significant amount of the EMI is changed to lower the outstanding principle. As a result, you may desire to make significant part-prepayments within the first few years of your house loan not only to save on interest but also to shorten your term and then become debt-free sooner.
- Increase the EMI
Assume, in our example, that in addition to the bonus, you also receive a wage rise at the end of the 12 months. You have much more money today; therefore you can contribute more to their debt, correct? Let’s do the math: Strategy 2 is to increase your EMI by Rs 1,000 in the first year, and Strategy 2+ is to increase it each year.
The amount obtained as a Home Mortgage is often large, and it can go into lakhs in most circumstances. The highest payback period allowed by lenders is often 30 years. One may have the option of choosing a tenure that is convenient for them. Your EMI is determined by the duration you choose.
Home Loan EMI, like every loan, has two components: principle and interest. In the beginning, the interest element is more than the principal element. While the primary component is greater than the interest element in the latter part of the tenure period.
This means that if your EMI is greater, your interest expenditures would be lower. And the principal amount will be repaid faster.
Increasing the EMI amount is an excellent method to reduce the length of your loan and save money on interest.
So far, we’ve spoken about two approaches:
- Advance payments
- Increasing amount of your EMI
Further to know more about applying for a home loan with lowest interest rate.