I am 37 years married with a son and residing in Mandya. I plan to avail a home loan of INR 40 Lakhs to buy my home. I want to know if there are any tricks which will help me repay my home loan faster? Can you also tell me what is home loan switching?
You must avail a home loan with a shorter tenure which helps you complete the loan repayment quickly. This means you pay lesser interest. If you opt for a shorter home loan tenure, your EMI's are higher, but the principal amount gets repaid earlier. Since the rate of interest is calculated on the principal, once the bank recovers the principal amount, the absolute interest pays out decreases marginally. 1. Set an EMI Target: Make it a goal to pay an extra EMI every year. In the months your finances seem to have a better cushion, add the surplus to your EMI as it will help reduce your principal amount as well as the interest. 2.Increase your EMI annually: With your annual salary appraisal, get into the habit of increasing your EMI payments every year by at least 5%. This will allow you to repay the principal much faster and reduce your interest. 3. Move to marginal cost of funds based lending rate: Post-April 2016, all banks moved from base rate to MCLR or marginal cost of funds based lending rate, as it allows borrowers to benefit from changes in the rate of interest.If you took a loan before April 2016, then ask your bank to switch your loan to MCLR. Banks tend to levy taxes as well as a conversion fee of 0.5% on the outstanding amount that needs to be repaid, so a cost analysis would again be beneficial. Home loan switching involves, transferring the entire unpaid principal amount on your home loan, from your bank to this new bank, which charges you a lesser rate of interest. Your interest repayment burden can easily be reduced by refinancing your home loan at a lower rate of interest. However, before switching, do check the legal fee and the prepayment penalty associated with the process.