Effective strategies to pay off your home loan faster

financialexpress.com:

For most people, purchasing a home is a major milestone. However, the associated mortgage debt can be a long-term financial commitment for many. In recent years, home loan borrowers have experienced a substantial increase in their monthly payment amounts. This can be attributed to the repeated hikes in interest rates on home loans by banks, which began in May 2022.

Though the Reserve Bank of India (RBI) has kept the repo rate steady at 6.5%, here’s a closer look at its impact. Let’s consider borrowers with a Rs 40-lakh home loan for a period of 20 years, for instance. Assuming the interest rate increases from 7% to 9.25%, these borrowers will have to bear an additional interest burden of Rs 15.05 lakh.

While it may seem difficult to mitigate this surge in interest rates, you can significantly reduce your overall interest expenditure by implementing strategies that can assist in paying off your home loan faster. The following are a few strategies to consider while making informed decisions to accelerate the payment of home loans:

1. Pre-payment: Pre-payment involves making additional payments towards your mortgage principal, which can significantly reduce the overall interest you pay over the loan term. Increasing your monthly payments or making lump sum payments can expedite paying off your debt.

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2. Partial Payment: Similar to pre-payment, partial payments involve making extra payments towards your mortgage. However, rather than committing to a regular schedule, you can make additional payments as and when you can. Even small increments made consistently can substantially impact reducing your debt over time.

3. Higher Interest Outgo: Opting