How to pre-pay your home loan to save on interest
Imagine this-you finally bought your dream house after spending months looking for the best bank for home loan. It’s a moment worth rejoicing and you’re moving into the new home. But at that very moment, you are struck by the thought that you also have to repay the loan through monthly EMIs. While it might not be a big deal for some people, for most Indians it can be a cumbersome process.
This is where prepaying your loan can make a lot of difference. Prepayment means paying off a portion of the outstanding loan before the due date.
Paying your easy home loan in advance not only helps you save on interest but also helps in closing the loan before the scheduled tenure. This means that you can become debt-free sooner than expected and have more disposable income to fulfill your other dreams. So, how can you prepay your home loan? There are many ways, but the most important thing is to make a commitment to yourself and your family. Make a plan, set a goal, and work towards it every day. It won’t be easy, but the rewards are worth it.
If you have some savings set aside, you can use them to prepay your home loan. While it may be tempting to use your savings for other expenses, prepaying your home loan can have a significant impact on your finances in the long run. Using your savings to prepay your home loan reduces the outstanding principal amount, which, in turn, reduces the interest payable. This can help you save a considerable amount of money on interest and also reduce your loan tenure.
Apart from using your savings, you can also make periodic lump sum payments towards your home loan. For instance, if you receive a bonus or a lump sum payment from your employer, you can use that money to prepay your home loan. Making periodic lump sum payments reduces the outstanding principal amount and helps you save on interest. It also shortens the loan tenure and reduces the burden of debt. Suppose you currently have an outstanding balance of ₹ 50 lakhs on your home loan, with an interest rate of 9.40% and a remaining tenure of 15 years. In this scenario, making a partial prepayment of ₹ 7.5 lakhs can help you save a whopping ₹ 17.73 lakh in interest and enable you to pay off your loan nearly 4 years earlier, shortening the tenure to 11.4 years.
If you have a stable income and can afford to pay more towards your home loan, you can increase your EMI amount. Increasing your EMI amount means that you are paying more toward the principal amount, which reduces the interest payable. It also helps you to close the loan early and become debt-free sooner.
Refinancing your home loan means transferring your existing home loan to another bank that offers a lower interest rate. This can help you save a significant amount of money on interest over the loan tenure.
While refinancing your easy home loan involves some costs, such as processing fees and legal charges, the savings on interest can offset these costs in the long run.
In conclusion, buying your new house can seem challenging and far-fetched in the beginning. However, with banks like Karnataka Bank having your back, you can take that first step, make that commitment, and start working towards your goal today. Remember: your dream home is not just a building; it’s a place where you create memories, find solace, and feel a sense of belonging. And with a little bit of sacrifice, discipline, and perseverance, you can turn that dream into a reality.