Let’s face it; no one likes a burden hanging onto them. Burdens are never nice, particularly if they lead to compromises and cut backs when you could be living your life freely in your golden years. Even if this sounds a little 70s/80s esque, bear with us! We’re talking of financial burdens that impact your monthly savings while leading to compromises on household costs and lifestyle expenses for a sizable period of time. Yes, you guessed it right! We’re talking about your home loan burden.
Well, to put things in perspective, home loans are necessary since very few of us (other than those born with the proverbial golden spoon or simply with piles of cash) can afford to make the entire payment for a new home from our own savings or investment plans. As a result, an overwhelming majority of us apply for home loans and they are for a good cause since they help us create an asset for a lifetime while ensuring greater security for your families. Yet, home loans can sap the vitality out of your peak years since they are often costly to repay every month and necessitate cutting back on desired lifestyle aspirations and other goals for years at a stretch.
Why should you let the home loan dominate your life so? Will you start living at 50 or 60 when you’ve repaid the home loan? Here’s what you can do to reduce your home loan load smartly and regain a few years of debt-free living!
Some vital steps that you can take
Once you’ve decided to slash your home loan liability, you are better off making your financial blueprint first. Have a clear picture of what your monthly expenses are and how much you can afford to allocate extra for clearing off your home loan. Additionally, here are some other steps that you can take:
- Home Loan Balance Transfer- If you’re in the early stages of your home loan, i.e. the initial few years, a balance transfer may make sense, particularly if another lender offers a lower rate of interest along with favourable terms and conditions. This is because you majorly pay interest through the monthly EMI in the early years of a home loan and the principal component repaid is lower. As a result, switching to another lender at a lower rate of interest may help you end up with a more manageable monthly EMI. This is something worth considering although if you’re only a couple of years or some more away from finishing your home loan, it may not be worth it.
- Consolidation of other loans- If you have other loans such as personal loans and credit card debt, i.e. unsecured loans, pay them off first while maintaining home loan repayments smoothly. This will help you free up more money for repaying your home loan faster while improving your credit score at the same time.
- Increasing your monthly EMI- Your monthly EMI is not carved in stone; you can definitely increase it if you want (sadly you cannot decrease it as you want!) periodically in order to repay the home loan faster. Doing this will ensure that a higher portion of the principal amount is repaid, equating to lower interest costs on the loan overall and a lower tenor as well. You can start out by paying at least a single EMI extra than the number of EMIs due in a year, i.e. 13 EMIs. You can also increase the EMI paid out by 5-10% every year in order to cut down the principal outstanding and reduce overall interest payable at the same time. Salary increases can be used wisely to this end.
- Prepayments always work- Making periodic prepayments will benefit you immensely if you can afford it. You see, home loan part prepayments help in lowering on the principal component while reducing interest outgo considerably on the entire loan. This also brings down the tenor of the loan. Keep your EMIs unchanged even if they officially go down while periodically investing surplus funds like bonuses into making home loan prepayments. Targeting 2-3 annual prepayments will help you clear off your home loan in half the original tenor.
- Shifting to MCLR- There are several borrowers who have home loans still linked to the base rate. If you haven’t yet shifted to the MCLR system, please do so by all means. You will have to pay a fee for conversion of the home loan. Always make sure you get an analysis done for the costs involved in switching to MCLR. However, in most cases, borrowers tend to benefit from interest rate changes in the MCLR framework.
What else can you do to lighten your home loan load?
Well, from a practical perspective, while you’re busy repaying and prepaying in that order, you should possibly cut your coat according to your cloth as the legendary phrase goes. If you have targeted sizable repayment of your home loan within a few years, make sure you are financially disciplined in this period. Do not miss your targets and in these few years, make sure you cut costs wherever possible without compromising much on the quality of life. Experts feel that at least 15-20% of our lifestyle costs are not indispensable and can easily be tweaked based on one’s requirements, thereby leading to more money in hand. Additionally, if you have extra money in hand every month post home loan repayments, you can always invest for faster wealth creation.
Investing to grow your savings and for meeting future goals is always a good thing to do even if you are attempting to pay off your home loan as fast as you can. Invest as much as you can; it will help you stay on track for future aspirations without any compromises. Additionally, building a corpus for the future is highly recommended as per experts. Not only will you have a solid asset, i.e. your home, but you will also amass sizable funds via investments for a comfortable future.
These tips can help you lighten your home loan load provided you’re willing to take it slow and steady while keeping prior financial targets in mind. Always remember, Rome wasn’t built in a day (we’re high on phrases today!) and it requires tons of patience and determination to clear off your home loan faster. The rewards, we assure you, are worth it (akin to reaching the top of a mountain and taking in the splendid view after a gruelling trek).