No prepayment worries! Pay off your home loan faster

Although it’s a great feeling to be a homeowner, paying a fat portion of your salary towards the EMI payment of your home loan is not the happiest feeling. And to think that you will need to keep paying this sum of money for a prolonged period of 10-15 years (the tenure of your home loan) may feel exasperating, as the best part of your youth is over by then!Besides, the interest rate you pay the lender may actually end up making the repayment amount bigger than the principal amount you have borrowed. What then is the solution? The solution is prepayment of your mortgage in easy and simple steps to lighten your debt burden and save money in the long run.

Jul 10, 2015 05:07 IST CreditVidya Rajiv Raj |

House
Till about a couple of years back, one had reason to be worried about the prepayment of one’s home loan because of the costs involved. But that does not hold true any longer with the RBI having directed banks and financial institutions to do any with any penalties on floating rate home loans. This directive from the apex bank came in the monetary policy announcement in June 2012.But if you still think that prepayment of your mortgage is an impossible feat given the fact that you are barely managing your other fixed expenses, read on to find out how it may not be such a far fetched possibility after all.
 
Take a look at your financial plan:
 
Before you jump the gun and panic thinking that you must pay off your home loan as soon as you can, or at least think about a refinance option for your home loan, take a closer look at your financial plan. See the number of investments you have and the returns they are yielding. Once you are assured that your investments are taking care of your short, medium and long term financial goals, you can direct the surplus you have towards the prepayment of your home loan. The thing to remember here is that, you should not dip into your emergency fund or compromise with your financial goals to make this prepayment.
 
Tweak your EMI structure
 
The thought of part payment of EMI may seem intimidating to you, because it is not possible for you to make a full payment of an EMI altogether, but have you considered the possibility of making a slightly higher EMI payment? Even a small amount of Rs 1,000 to 2,000 will go towards towards the repayment of the principal amount of your loan. As your principal comes down, so does your interest amount and you end up reducing your tenure by at least 1-2 years.
 
Make partial payments whenever possible
 
Most large banks allow their home loan customers to make n-number of partial payments in a year (However some banks may have a limit of the number of partial payments one can make in a year, so make sure you check with your lender about this provision upfront) . So whenever you have a festival related bonus or a performance bonus coming in, use it for the part payment of your home loan, instead of buying that expensive LED television set or the latest iPhone in the market. While you may have to make certain compromises now, you will end up saving a lot of money on your home loan in the long run.
 
Cut your costs and live below your means for the first few years
 
Having a home loan to pay off is a great financial burden, but there is nothing that matches up to the satisfaction of having a roof over your head that you can call your own! Let this be your motivation to cut corners wherever you can and direct the money saved towards the prepayment of your home loan. You may have to let go off the annual vacation in a foreign location for the first few years of your mortgage tenure, but having the peace of mind will be a much bigger incentive.
 
Get the family involved
 
You may be the main breadwinner of the family and the onus may be on you to manage the finances, but when it comes to the mortgage, make your family as responsible as you are. Instead of having to battle their disappointments about not getting the things that you had earlier planned (the foreign vacation for instance!) make them as involved in the prepayment process as you are. They may not be able to pitch in with the extra money, but they can sure think up some interesting means of spending quality time together. A vacation in a place that is closer to home or doing up the kid’s room with their favourite furnishings could save money and give them as much joy!
 
By using these simple yet effective strategies you can actually end up saving a lot of money and having the full ownership of your home much before your tenure ends. Take our word for it! There is no better feeling in the world than trimming your debt pile, especially if you are on a mortgage.
 
The author is Co-Founder & Director, CreditVidya.

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