Smart ways to repay home loan

Simple methods and a little prudence can help home buyers save big

For most of us, owning a home is a coveted dream often marred by long EMI burdens that leave a sizeable dent in the monthly income.

With an upswing in demand for affordable homes, coupled with the attractive subsidy scheme for LIG and MIG buyers, the affordable home loan market is expected to grow in the coming years. But when you buy a house without enough savings, the loan EMI will be large.

Here are a few ways to save on your EMI outflow.



Using your bonus



Most corporate employees get an annual bonus, which can be used to pay an extra EMI every year or an upfront part payment.

When you start paying off your debt amount early, it reduces the repayment time period and interest cost and effectively results in a lower EMI. Though it can be a little tough at the start to save for the extra EMI, it is a wise move in the long run.

All home finance companies/banks have ‘zero’ prepayment charge for all floating rate term loans(individual borrowers). Paying an EMI early also boosts your credit-worthiness for the future.



Take a longer tenure to lower EMI



You may feel there is virtually nothing left after paying your monthly EMI as it gets deducted from your salary at the start of the month with 30 days staring at you. This is why lowering your EMI by slightly extending your loan tenure is a good option.

For instance, an EMI of ₹53,984 for a ₹60-lakh home loan running for 20 years at 9 per cent interest rate can become ₹48,277 if the tenure is raised to 30 years. Go for this option so that when your salary increases later, you can reduce the loan tenure and pay more EMI.



Lumpsum repayment at regular intervals



Over a period of time, we may get a windfall of a few ‘large chunks’ of money in the form of money-back amount from your life insurance policies or some other source. The important thing to note is that such inflows can be smartly utilised to repay at regular intervals. By making a ₹1-lakh repayment after three years, you can save up to ₹1.88 lakh and cut your loan tenure down by six months on a ₹50 lakh home loan, originally running for 15 years at a floating interest rate of 9 per cent. If you repeat these lumpsum repayments a few more times, you can actually lower the tenure or EMI by a big margin.



Transfer your loan to another lender



If you find a home loan provider who offers better terms and conditions on your loan, it might be a good option to change your lender. This is called a balance transfer and is available with most home loans. A balance transfer can also help you get a lower EMI, while ensuring better service and loan terms. In such cases, it is important to calculate the costs involved in transferring your loan, such as fees, stamp duty on mortgage, to ensure that the costs are not greater than the savings. In the present scenario where interest rates have fallen from about 9.75 per cent to 8.35 per cent, the savings on monthly EMI could be anywhere between 10 and 12 per cent. This is subject to the type of loan, the age of the primary loan, the loan corpus, the portion of repayment completed and your track record as a borrower.

Just remember that a home purchase can only give you security if it is correctly balanced with your other financial commitments.

The writer is ED and CEO, Reliance Home Finance

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