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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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.
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 🙂
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.