A home loan is a long-term commitment. The tenure could be as short as 10 years, going all the way up to 30 years. The loan tenure you choose plays a huge role in deciding your EMI and resultantly, your overall cost of purchasing a house.
The more time you take to repay the loan, higher will be the interest you will have to pay. Managing the home loan tenure is critical not only from a financial perspective but also considering that there is a higher risk in servicing a loan over longer periods.
Changes in the economic scenario, income earning potential, age-related health risks or accidents – even though a rare likelihood – are factors to consider.
As a homeowner, you should be looking at how to reduce home loan tenure.
Make a large down payment
Financial institutions now provide home loans up to 95% of the property value. This offers the advantage of not having to use much of your own money. However, it also means that your loan amount, tenure and interest cost rise significantly.
A home loan EMI calculator will give you a detailed breakdown of the principal and interest you will pay during the term of the loan.
By making a large down payment – through savings or sale of other assets – you can bring down your home loan EMI and tenure.
Additional Read: How to Reduce Home Loan EMI – Tips and Tricks
Make lump sum instalments often
Through the course of the loan, if you have additional savings or chance upon windfall gains through bonus, commission, gifts, etc., you can use the funds to make an add-on contribution to your home loan besides the standard EMI. This lump sum injection will bring down the outstanding amount and shorten the tenure.
Switch between fixed and floating interest rate
Irrespective of your initial choice, many financial institutions allow you to switch between fixed and floating interest rates through the term of the loan for a small fee. You may not be able to switch often, though. Hence, evaluate the economic scenario and take a call only if your savings are going to be substantial due to a switch.
Take advantage of a Flexi EMI option
As you progress in your professional life, your income potential rises. Some financial institutions offer a Step-Up Flexi EMI option that allows you to pay more as your income grows. In such a scenario, you have the option of progressively increasing your EMI. As the EMI goes up, the overall loan amount and tenure reduce at a faster rate.
Foreclose the loan
If you receive a large sum of money by way of inheritance, sale of an asset, liquidating an investment, windfall gains, etc. you could pay off the entire home loan before the tenure. Some foreclosure charges might be applicable based on the outstanding principal amount in addition to government taxes. However, Tata Capital does not levy any foreclosure fee if you use your own funds to prepay the loan. Be smart; choose a flexible loan partner that helps you fulfil your dreams on your own terms.
Additional Read: Home Loan Prepayment: Top Things to keep in mind before prepaying