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.
16 Tips to reduce home loan tenure
1. What should be reduced, the EMI or the Tenure?
When you have extra funds, it can be difficult to decide whether to reduce your EMI or shorten the loan tenure. Both options have their benefits, but the choice ultimately depends on your financial priorities.
Reduce tenure for long-term savings: If you’re in a position to handle higher EMIs, reducing the loan tenure is typically the more beneficial option. This will help you repay the loan quickly and significantly lower the total interest paid over the loan’s lifetime.
Reduce EMI for better cash flow: If your monthly budget is tight or you’re investing elsewhere, reducing the EMI might be a better fit. It lowers your monthly burden, giving you more room to manage other financial goals. This option can ease short-term pressure while keeping your financial plans intact.
2. Opt for a shorter loan tenure
If you’re looking to reduce your home loan EMI and the overall loan duration, consider choosing a shorter tenure. While this will mean higher monthly payments, it can save you a lot on interest in the long run. By opting for a shorter tenure, you’ll clear your home loan quicker, making you debt-free sooner.
Advantages-
Less interest paid over the life of the loan
Clears your home loan faster
Offers a sense of financial freedom sooner
Disadvantages-
Higher monthly payments could stretch your budget
3. 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.
If your finances permit, consider increasing your EMI amount periodically. Even a small increase can have a big impact on reducing your home loan tenure. By paying a little more each month, you can accelerate the repayment of the principal and pay off your loan faster.
Advantages-
Faster repayment of the loan
Lower overall interest paid
Disadvantages-
Requires steady financial discipline
5. Consider pre/part-payments
If you receive extra funds through a bonus, gift, or any other source, think about using a portion of it to prepay your home loan. These payments help reduce the outstanding loan amount, which can shorten your loan term and bring down the total interest you pay.
Advantages-
Helps lower the principal faster
Saves on interest in the long run
Disadvantages-
Extra funds may not always be available
6. 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.
7. Use bonuses and surplus income strategically
When you get a bonus or any unexpected income, consider using part of it to pay off your home loan. Even small prepayments made regularly can help reduce the loan amount and shorten the repayment period.
Advantages-
Makes good use of extra income
Helps reduce loan faster and save on interest
Disadvantages-
You may have to delay other personal expenses or goals
8. 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.
9. 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.
10. Refinance at lower interest rates
Can we reduce home loan tenure by refinancing at a lower interest rate? Yes, if market interest rates drop below your current home loan rate, it might be a good time to switch lenders or renegotiate your terms. Refinancing can help reduce your EMI and possibly shorten your loan tenure, making repayment more manageable.
Advantages-
Lower overall interest payments
Better loan terms that fit your financial needs
Disadvantages-
May involve paperwork, fees, and lender approval processes
11. Opt for a home loan balance transfer
Transferring your home loan to another lender/financial institution that offers a lower interest rate can help lower both your EMI and loan tenure. By continuing with the same EMI amount at a lower rate, you pay off your loan faster and save on interest.
Advantages-
Lower interest rate means long-term savings
Option to reduce tenure without increasing EMI
Disadvantages-
May involve charges like processing fees and other transfer costs
12. Select an overdraft facility
If you usually have extra income, you can link your home loan to an overdraft account. Along with your regular EMI, you can deposit any extra money into this account. While your EMI amount stays the same, the surplus reduces your loan’s outstanding balance. The longer the surplus stays, the more your interest reduces, which can shorten your loan tenure.
Advantages-
Reduces the outstanding principal
Lowers the interest charged and shortens the loan tenure
You can withdraw the surplus if needed
Disadvantages-
Requires regular surplus income to be effective
Some banks may charge extra for this facility
13. Request for a loan restructure
If your income has increased or you are financially stable, you may request your lender to reduce your loan tenure. By increasing the EMI amount, the loan tenure shortens, helping you pay off the loan sooner. This restructuring can help you save on long-term interest costs.
Advantages-
Reduces the total interest paid over the loan period
Allows you to adjust the loan based on improved financial circumstances
Disadvantages-
Higher EMIs may put pressure on your monthly budget
Income must be stable to ensure you can handle the increased EMI payments
14. Regularly monitor and review your loan
It’s important to keep track of your home loan over time. Lenders may offer promotions or special schemes that could help you reduce your loan tenure or interest rate. By staying updated, you can take advantage of opportunities that can benefit your finances.
Advantages-
Access to better loan terms or lower interest rates
More efficient management of your loan
Disadvantages-
Requires effort and time to stay updated on market trends
15. Utilise tax benefits wisely
Home loans offer tax benefits on the principal as well as interest payments. It’s important to understand and utilise these benefits to your advantage. By lowering your taxable income through home loan deductions, you can free up more funds for your EMI payments
Advantages-
Lower tax liability
More disposable income for EMIs
Disadvantages-
Tax laws may change, so it’s important to stay informed and updated.
16. Foreclose the Loan
Can home loan tenure be reduced early? Absolutely. 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.
If you’re looking for how to reduce home loan tenure, there are several strategies you can consider. Opting for a shorter loan tenure, making regular prepayments, or refinancing to a lower interest rate are all effective options. Additionally, reviewing your loan terms and taking advantage of tax benefits can help reduce the overall loan duration. Implementing these steps will not only shorten your loan tenure but also save you money on interest, bringing you closer to financial freedom.
Can I reduce the home loan tenure through the same lender?
You can reduce your loan tenure with the same lender by renegotiating the terms. This may involve paying extra towards your loan or restructuring it. The lender might also offer options like lowering the interest rate, which helps reduce the overall tenure.
Can I reduce my home loan tenure through a home loan balance transfer?
A home loan balance transfer allows you to move your loan to a new lender, possibly with a lower interest rate. This can shorten the tenure for home loan. You can also reduce the tenure by making additional payments or using bonuses towards the loan balance.
What is the lowest tenure for a home loan?
Home loan tenures can be as short as 5 years. The minimum tenure depends on the loan amount and your repayment capacity. Shorter tenures come with higher monthly payments but help you pay off the loan more quickly.
13 May 2025
8 mins read
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