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A report by the Reserve Bank of India (RBI), released in March, indicated that there was a significant decadal growth in home loan advances of almost 6 per cent to 14.2 per cent in March 2023 from 8.6% in March 2012. The report was a testimony to Indians’ increasing reliance on home loans.

Home loans are most likely to be high in amount and for the longer term. A borrower spends her/his hard-earned money to repay these loans, which come with a heavy interest. The prevailing home loan interest rates range from 8.50 percent to 14.75 percent. The longer the duration of the loan, the more interest you end up paying.

So, how do you save up enough to finish the loan? How do you ensure you have sufficient money left in your wallet for the rest of the month once the home loan EMI has been deducted? One of the best ways is to repay the loan earlier than its actual duration. It requires commitment, discipline, and strategic financial planning to pay it earlier.

But, if paying off a little extra comes at a great financial strain for you, here are a few other ways that you could explore to repay your loan quicker.

Refinancing

In the refinancing method, you should choose a bank that offers you a home loan at a lower interest rate and close your running loan with the money sanctioned by the new bank.

Since home loan interest rates of different banks vary, a little research should help you find a bank with a lower interest rate to get your home loan refinanced.

For those who can afford to pay a higher EMI, you should try and opt to refinance your loan with a shorter repaying term. This readjustment to your finances — although may sting you for a bit in the short term — will be a blessing for you in the future.

Switching to fixed rate

If you have a home loan with a floating interest rate, consult a financial advisor and switch it to a fixed rate through another bank.

In a floating interest rate home loan, you pay extra money when the lender increases loan interest rates, as and when the RBI hikes repo rates. Switching to a fixed rate will keep you immune from rising interest rates.

Avoid accumulating new debts

Any new loan or a defaulted payment, such as a credit card, can derail your financial planning, forcing you to miss your home loan payment. It’s better not to take a new loan if you are already paying a high monthly instalment on your existing loan.

Set up automatic payments

This is an effective way to inculcate good money habits. You can set up automatic home loan payments for the date you receive your salary. It will ensure your payment is on time, and you won’t incur any penalty from the lender.

Make additional payments

If you have the resources to make extra payments on the home loan, do not hesitate. You can opt for weekly or fortnightly payments instead of monthly for early repayment. Additional payments will reduce your overall loan repayment amount and help you save money.

Allocate windfalls and bonuses to loan payments

To make early payments on your home loan, you can allocate windfalls, tax refunds, work bonuses, or any unexpected financial gains to repayment. Not just that, you can also channel your inheritance or gifts towards paying off the home loan.

Closing a home loan and living debt-free, comfortably in that cosy home should not take you a lifetime. The better you manage your finances, the higher your savings will be. Now, hurry up and get to your excel sheets before the next EMI.

Atul Monga, CEO and Co-Founder, Basic Home loan

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Updated: 18 Oct 2023, 01:47 PM IST