Smart ways to close your home loan sooner than you thought
Recently I have purchased a residential property and taken Home Loan from LIC HFL. While the first EMI is yet to start , I was thinking about various ways where I can close the home loan faster. What if I close in next 15 years, why not in 10 years, would I be excited to close in next 5 years. Can I, celebrate with a Galata party if I close in next 3 years. I had drawn a plan and checked various ways to close a home loan sooner. I thought it would be ideal to share these thoughts with our readers too.
6 Smart ways to close your home loan sooner than you thought
1) Partial prepayment of loan through Systematic Payment Plan (SPP)
I have created this terminology, hence don’t google it for this SPP. What I meant here is create a plan now to do pre-payment in the new year and work towards saving this from day-1. E.g. if you are intending to do pre-payment of Rs 60,000 in next year, start Rs 5,000 savings from Jan itself every month. Now you can invest this money through recurring deposit for next 12 months and do partial pre-payment of loan by end of Dec. You can also invest this money in short term debt mutual funds to get higher returns. Gradually you can increase the partial pre-payment amount every year.
Also Read: How to pick-up best home loan suitable to an individual?
2) Variable pay / Incentives / Bonus can contribute to partial pre-payment
Many of us work in MNC/IT companies and get yearly variable pay during Apr/May. This amounts to signifant amount as it would be approx 10% of your yearly salary. Just pay this amount as partial pre-payment of loan every year without using this as general expenses. Such commitments would help you to pay your home loan faster.
3) Save and invest in Mutual Funds
One of the best way to pay home loan faster is invest your savings in equity and balanced mutual funds. You can choose a term of 5 to 8 years and do SIP every month. If you want to pay within 5 years, you can select balanced mutual funds to invest in. Mutual funds offer 12% to 15% annualized returns on your investment and is a best tool to close your home loan faster and sooner.
4) Do Partial Prepayment, but do not reduce EMI
When you do partial pre-payment, banks would give a choice either to reduce EMI or to reduce the tenure of the loan. Best way to close your home loan faster is choose to reduce tenure of loan and not reducing EMI. This way your monthly commitment would still remain same.
5) Increase EMI when your income grows
Every year, employees would get salary hikes. For business men, income increases. One of the smart way is to increase the EMI as and when you see an increase in your income. This would reduce your loan tenure and helps you to close your loan faster.
Also Read: Is SBI Max Gain Home Loan is a unique home loan scheme in India?
6) Switch to lower interest rate home loan
If your home loan provider is charging you higher interest rates, switch to lower interest rates home loan provider. E.g. SBI / ICICI Banks are offering lowest home loan rates ranging between 10% to 10.2%. In case there is any possibility to switch home loan, you should do that. Consider processing fees or any additional fees involved for such a switch.
Conclusion: While you all might think that I am conservative. I may not adopt all these tips. But I am confident that I would be able to implement majority of these tips and close my home loan faster and early. Wish me all the best.
Readers, what are the creative ways which you are adopting to pay your home loan faster?
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Suresh
Smart ways to close your home loan sooner than you thought
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Sir, I have recently taken a LIC HFL loan @ 10.1%. Instead of prepaying the loan amount, if I continue a SIP in a good mutual fund for the entire term period, i can earn much better return (say at least 15% CAGR). Also, by doing this, I can have IT benefits on the LIC loan. I hope my plan is a better strategy. Please advice.
ayyappan. J
Strategy is good. However you are paralelly doing investment keeping your debts (loan). This is where I want to come out and make myself as debt free. Otherwise, you can adopt this option.
Congrats Suresh. Wish you succeed in closing your home loan as planned.
Just a query, won’t the interest earned in recurring deposit be taxable. Instead of that why not pay additional amount towards principal and thus reduce the interest out go little by little.
Chethan, Thanks. Yes, RD returns are taxable. Paying every month towards loan repayment may be challenge and tracking would be difficult. e.g. Instead of repaying 5K per month, you can pay 65K after 1 year (along with interest).
Nice Article Suresh.
From my perspective,basically when we have a thought in mind that we are borrowers and we need to get out this trap called HL – we should reduce our spends (need to check which is essential/necessary)..I remember the precious generation (say our parents/elders think twice before spending money)..
So my view is in addition to the 6 modes you mentioned – the reduced spending pattern to mere essentials makes sense..
All the very best for you to complete your HL quicker…I am too a New HL customer…in same mindset as you..
WoW nice tip Richard. I agree your point.
Congrats and all the best
Dear Sir, I feel you have just considered the above ways from salaried persons point of view. What about self employed persons ? Put some light on Home Loan Interest saver account offered by various banks. I guess one can use it to save tax as well as interest to a great extent.
Hmmm. Sure Bhavya, I would do that in coming weeks.