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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What a data of un-ambiguity and preserveness of precious know-how on the topic of unexpected emotions.
Hi Suresh,
You have posted this nearly 3 years ago and what best practices worked and how much % of home loan have you closed? Hope who had a good run reducing the outstanding principal
I read this got inspired followed some of the tip last year like prepayment is one which works really well which I did last one year & moving a land loan to other lender with less interest rate which comes as top up in home loans which I plan to complete in the next couple of months and 3rd I will try is the SIP/Mutual funds for next 5 years and see where I go 🙂
Cheers,
Ponz
Good to hear this Ponz. I was able to accumulate money, however took a step back when came for repayment. I wanted income tax benefit to be continued. I diverisifed such funds to other investment options. Now I am able to get returns + tax benefit is continuing.
I took home loan from DHFL on 10.47%now my outstanding capital is 1070000 still 168 month to complete l have 2lac in my hand shall pay this amount as partial payment in bank or shall l increase my EMI .please give me some information to close my home loan soon
If you pay now, your EMI would be same, but tenure would reduce. This way you can still manage your outflow and come out of debt faster.
– have this amount as the contingent amount for any emergencies..
– save money in salary or use a short term credit card loan (one year) or
– pay LIC by credit card and convert it as EMI but pay the cash to loan or
– for initial phase ask your sister or brother or mother to contribute some thing (even 1000 for months)
– sell some commuting vechicles and pay
– use the bonus to pay off
(lot of options are there fix it and pay loan first.. I paid 10 lacs within 2 1/2 years and best wishes
I have home loan with SCB Homesaver account(Int rate – 8.5%). Current outstanding is around 19.4 lakhs and I want to close this loan within next 1.5 years.
1) Mutual Fund – Giving around 20% return annually
2) Monthly savings – 1 lakh
What do You seggest? Shall withdraw the amount invested in Mutual fund and put it in the current account so that the loan gets closed earlier? or I will continue to hold the same as its yielding higher returns and normally close my home loan with the monthly savings? Thanks.
I am doing the same as you have adviced,but Is it ok to pay an extra amount of 5000 on monthly basis or an rd of 5000 which ill pay after one year will be good.Kindly guide
Dhananjay, Don’t pay small amounts every month. Instead you accumulate in a year and make yearly payments.
Faster way to reduce the home loan.
1. It's better if you go for montly repayment
E. G if you pay montly 5000 then yrly you will pay 6000 and it will reduce the interest amount montly base
2. If you go for mutual fund or any other investment.. Highest interest rate may be 15% and if you going for 5 yrs then u paying a bank double in that 5 yr..
3.best option is to repay after u will get the bonus or hike in salary in every year
4.if you increase your emi after increasing salary.. So according to me don't tk over burden by increasing emi among its better to repay highest amount in bank after increasing salary
hello
I want advice for prepayment of my home loan. My two home loan are running curently. One of the home loan of 10 lakh with tenure of 15 years and after completing 7 years of period outstanding amount is 3.8 lakh. one of the home loan of 17 lakh with tenure of 25 years and after completing 3 years of period outstanding amount is 14.3 lakh. The rate of interst on both the loan is 8.75%.
I want to repay of the loan from CPF loan where interest rate is 8.5% reducing interest rate.
My idea to repayment is OK or not. please guide. Also which loan I repay to get maximum benefit of my decision.
Hi Jitendra,
It is best to pay -off you loan which have high balance left because soon you pay less you give the interest to bank.
BR
YP
Hello
For your point-1, LICHFL and other govt. Banks will allow you to prepay atlease 2000/- pm through cheque. No need of RD andwiat for pay out on the mature.
I think it would definitely work “ALL THE BEST. “
ALL The best….
good information.
good point 4 ..
– Pon’s
Trichy
First of all why one should pre-pay or even pay back completely the home loan? Isn’t it good avise to utilized that accumulative amount somewhere else to get better returns. Also paying back home loan adds 2 lacs/year to ones income for which one needs to pay 30% tax ?
Excellent Article.
good suggestion, thanks
I think the new SPP idea is looks good..
one more best idea to close your home loan is… to sell all gold items which are not used daily raise money and close home loan.. and if u want to restore your gold u may do it by purchasing gold every month. It will raise your asset column also.
Excellent. I have got the same idea like SIP. I got confident after your suggestions
GOOD one keep it going
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.
I am paying 25k every month as my EMI took Sep 2012 for 5 years.
Will you still advice to use my Bonus to partial prepayment? Tax savings on EMI will go down due to lower interest ??
I am Planning to move Bonus for investment & Spending on Vacation.
Karthikraja, What my intention was to close home loan faster. If I am getting tax benefit, with pre-payment if I am going to loose such benefit, I would try to delay it or avoid it.
Good One sir!!
Dear Suresh,
**ALL THE BEST** (Hope you close your HL soon)
wishing a Happy New Year to you and all our readers..
Thanks,
Suresh Balivada
Thanks for your wishes
The other way to close your home loan faster is through SBI Maxgain or Citibank Home Credit option. The loan rate maybe a little higher than normal loan, but these loans do close faster. I keep all my emergency funds in these loan account, for which I do not get charged Interest. At the same time, I keep my EMI same – so effectively, my emergency funds keep getting utilized to pay off my principal amount thus reducing the tenure of the loan significantly.
I highly recommend this option if your goal is to close the loan quickly.
Piyush, You are indicating the point before taking housing loan. Since I already taken HL from LIC, I cannot take SBI max gain or citi bank home credit option. Thanks for your tip. This may be useful for those who are planning to take home loan.
Nice Read sir ! Thanks !