Home loans are financial tools that enable people to realise their aspirations of becoming homeowners. While these loans give you the money you need, managing them can be difficult because of their lengthy terms and the significant interest they accrue. However, there are practical methods that borrowers can use to shorten the loan term and save money.
The Importance of Reducing Loan Tenure:
Reduced loan terms are essential for several reasons. First, it enables you to get out of debt faster. Second, you can save money by taking out a loan for a shorter period and paying less interest over time. Borrowers can achieve full homeownership more quickly and feel financial relief by implementing strategies to shorten the loan term.
Increasing EMI Payments:
One of the most effective ways to reduce loan tenure is by increasing your Equated Monthly Instalment (EMI) payments. EMI is the fixed amount you repay every month to the lender. You can expedite the repayment process and minimise the overall interest burden by paying a higher EMI.
Suppose you have a home loan of Rs. 50,00,000 with an interest rate of 8% for a 20-year period. The accurate monthly instalment, known as the Equated Monthly Installment (EMI), for this loan, is approximately Rs. 41,753.
Now, let’s consider that you decide to pay an additional 1% of the loan amount every month, which amounts to Rs. 418 per month. By making this extra payment, you have the potential to reduce the loan tenure by five months, bringing it down from 240 months to 235 months.
Use this tool to claculate –https://khatabook.com/calculator/loan-tenure/
Please note that these calculations assume that the additional payment is made consistently every month, and they are approximate values. The precise impact of extra payments on loan tenure may depend on specific loan terms and conditions.
More Ways to Reduce Loan Tenure:
Borrowers also have more alternatives to shorten the loan term apart from increasing their EMI payments.
Refinancing the loan is one of these techniques. Refinancing allows borrowers to benefit from cheaper interest rates given by competing lenders, effectively lowering the total interest paid throughout the loan.
Prepayment of the debt is another approach to think about. You can pay the principal in one lump sum if you have extra money, which would lower the overall debt. As a result, the tenure and interest payment reduces.
A balance transfer is a third option. When borrowers move the balance of their outstanding loans to a different lender with better terms and conditions, there can be more benevolent payback conditions, lower processing costs, or lower interest rates. Borrowers may be able to shorten the tenure and pay less interest overall by choosing to transfer their debt.
Tips for Choosing the Right Home Loan and Lender:
It is crucial to assess several aspects to ensure the best loan and lender when considering a home loan. You can use the following to make an informed choice:
- Compare different interest rates: Compare and analyse the interest rates provided by various lenders to find the best offer.
- Understand your alternatives for loan terms: Examine whether it would be feasible to choose a shorter loan term from the start to reduce your interest payments.
- Explore prepayment fees: Find out the prepayment charges imposed by lenders. To have the freedom to shorten the loan term when you have extra money, choose a loan with lower or no prepayment penalties.
- Consult a professional: Consult with mortgage brokers or financial consultants who can offer professional advice and assist you in navigating the complexity of home loans.
Shortening the loan term can be a wise financial move that might result in more savings over time. Borrowers can reduce the loan term and pay off their debts sooner by raising their EMI payments, looking into refinancing possibilities, considering prepayment, or choosing a balance transfer.
Before selecting the ideal house loan, it is necessary to review the terms and conditions of several lenders. Borrowers can more easily attain their goals of becoming homeowners by putting these tactics into practice and making well-informed judgements.
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Originally published at http://realestateandepc.wordpress.com on June 22, 2023.
