Although it feels great to own a home, paying a good portion of your salary for an EMI payment is not the happiest feeling. And continuing to pay that kind of money for 10 to 15 years (the term of his home loan) can be infuriating because the best part of his youth will be over by then. Also, the interest rate you pay to the lender may end up making your repayment amount more than the original amount you borrowed. So what is the solution? The solution is to prepay your mortgage with easy, simple steps to reduce your debt load and save money in the long run.
Until about two years ago, one had reason to be concerned about prepaying a home loan because of the costs involved. But that is no longer true as the Reserve Bank of India has ordered banks and financial institutions to remove penalties on variable-rate mortgage loans.
This guidance came from the major bank in its June 2012 monetary policy announcement. But if you still think paying your mortgage early is an impossible feat given the fact that you’re barely managing your other fixed expenses, read on to find out how such a long shot may not be after everything.
1. Take a look at your financial plan
Before you rush into a panic that you need to pay off your home loan as quickly as possible or at least consider refinancing your home loan, take a closer look at your financial plan. Look at the number of your investments and the returns they generate. Once you are sure that your investments meet your short-, medium-, and long-term financial goals, you can use your surplus to prepay your mortgage loan. The thing to remember here is that you don’t have to dip into your emergency fund or compromise your financial goals to make that prepayment.
2. Modify your EMI structure
The idea of a partial EMI payment may seem intimidating to you because you cannot make a full EMI payment entirely. But have you considered making the EMI payout a bit higher? Even a small amount of INR 1,000 to INR 2,000 will go towards paying down the principal amount of your loan. When your principal goes down, the amount of interest also goes down and you end up reducing your term by at least 1-2 years.
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3. Make partial payments whenever possible
Most large banks allow their mortgage loan customers to make N number of installments per year (however, some banks may have a limit on the number of installments a person can make in a year, so be sure to check with your lender about this). in advance). So when you have a performance or festival-related bonus, use it to partially pay off your home loan, instead of buying an expensive LED TV or the latest iPhone on the market. While you may have to make certain compromises, you’ll end up saving a lot of money in the long run.
4. Cut your costs and live below your means for the first few years
Getting a home loan to pay off is a huge financial burden, but there’s no satisfaction in having a roof over your head. Make this your incentive to cut corners where you can and direct the money saved toward paying off your home loan early. You may have to forego annual vacations abroad for the first few years of the mortgage term, but the peace of mind will be a much greater incentive.
5. Involve the family
You may be the main breadwinner in the family and the burden of managing the finances may fall on you, but when it comes to the mortgage, hold your family as responsible as you are. Ask them to participate in the prepayment process as you do. You may not be able to share the extra money, but you can definitely think of some fun ways to spend quality time together. A vacation close to home or furnishing the children’s room with their favorite furniture can save money and make them happier!
By using these simple yet effective strategies, you can end up saving a lot of money and gain full ownership of your home long before the term is up.