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Best way to pay off your Home Loan faster?
Best way to pay off your Home Loan faster?

A Home Loan is imperative for buying a dream home today; especially with the overload of flexible Home Loan schemes and EMI options for the borrowers in the current market space. While most housing loans are extended with ease of repayment owing to 20-30 years of loan tenure; borrowers must prepay the loan as and when possible, as per their capacity. For, paying the loan faster than the anticipated tenure helps you save enough on the loan interest and eases debt stress to a great extent.

While there is no one-size-fits-all advice, you should keep following tips in mind when you decide to pay out your Home Loan fast.

• You can choose to pay “more instalments” in a month or one hefty instalment every year, according to your repayment capacity. However before choosing the path, it is important to discuss the same with your lender before taking the loan.

• A Home Loan Repayment involves principal as well as interest component. In the initial period of the loan, you only pay interest and the principal doesn’t reduce at all. Thus you must try to repay principal early if you      want to pay out your home loan early.

Every repayment above your monthly EMI will reduce the principal amount and thus reduce the burden of interest on the balance loan. Continuing this for regular intervals will help you reduce the tenure of the loan efficiently.

• If better deals are available from other banks, you can get your best home loan refinanced and pay it faster. But this option will entirely depend on whether you have a good credit history or not. In ideal scenario, it will help you get a lower interest rate and more affordable EMI. You can check your Home Loan EMI with Home Loan EMI Calculator.

Home Loan Balance Transfers are one of the popular financial products and banks offer better rates and deals to attract new customers. Whether you want to reduce the loan tenure or loan EMI, it can be quite fruitful to you.

• You can also consider consolidating your loans and reduce the overall debt burden. By reducing your other liabilities, you can better manage your home loan.

• There is a thumb rule that says you should always pay your most expensive debts first. So, loans which charge you a higher rate of interest should be paid first. Hence if you have a Home Loan and a Personal loan running simultaneously, you should first close your Personal loan. The interest rates for Personal Loans is generally around 15-25% p.a. whereas for a Home Loan, the interest charged varies from 8.5% - 11.5% p.a. Later on, you can focus on repaying your home loan principal and reducing the loan tenure.

• Many lenders offer milestone benefits to the borrowers on disciplined loan repayments. The banks offer reduced EMIs and waiver of EMIs on completion of certain number of years. You must always make a good use of any of these offers if available with your lender.

•In case your relatives or friends can lend you money to pay up the loan faster, use the available financial assistance. You’ll save on paying a lot of interest and can return the money to them without stress.

Every bank has a different tenure and clauses. Sometimes when you’re near the loan tenure closing date, you might want to hold back on the pre-payment because those charges can exceed the interest. So it is important to make the decision on time.

After you decide to pre-pay the loan, visit your bank branch and apply for the same. It is important to keep the bank in the loop of whatever you plan regarding the loan. They can help you with the forms, documents and all the approvals. Once you have obtained and submitted all the documents, your request is approved, and your loan account is closed, your loan is officially considered paid. This will also reflect positively in your credit report. You would require following documents for the home loan preclosure:

  • Loan application
  • Sales deed of the property
  • No Objection Certificate (NOC) issued by the bank
  • Statement of loan closure account
  • An encumbrance certificate stating all the financial transactions relating to the property
  • Loan closing application
  • A note from CIBIL citing the closure of the account because it is important to update the loan closure in the CIBIL database.

The process of informing CIBIL and receiving the acknowledgement letter might take around 30 days or more. Besides, collecting all the documents would be a time consuming task; so it is important that you plan to obtain all these documents two to three months before you plan to close the loan.

As you close the home loan, it would improve your credit score considerably, thereby improving your creditworthiness and making you ever ready for loan.

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