Owning a house is a cherished dream for many Indians. While purchasing a home is often an emotional decision, it’s essential to approach it with a practical mindset.

Home loans typically span 20 to 30 years, but many borrowers aim to repay their loans faster to achieve full ownership sooner. Paying higher home loan EMIs can be a strategic way to accelerate repayment while also benefiting from reduced tenure and substantial savings on overall interest costs.

By understanding the benefits of higher home loan EMIs, you can make informed decisions that align with your long-term financial goals.

Advantages of Paying a Higher Home Loan EMI

Here are the different ways you can benefit from paying higher EMIs on your home loan:

Faster Loan Repayment

One of the most significant benefits of paying higher home loan EMIs is the ability to repay your loan faster. By increasing your monthly EMI amount, you shorten the loan tenure, enabling you to reduce your debt quicker. This also frees up financial resources for other investments or expenses in the future.

Lower Overall Interest Costs

A shorter loan tenure can significantly reduce the overall interest costs over the life of the loan. Since interest accrues over time, repaying your loan faster reduces the total interest outflow, resulting in substantial savings.

Potentially Improved Credit Score

Consistently paying the high home loan EMI demonstrates a strong repayment capacity to lenders, which can positively impact your credit score. A higher credit score not only enhances your creditworthiness but also improves your chances of securing future loans at favourable terms.

Builds Financial Discipline

Committing to high home loan EMI encourages better financial planning and discipline. It helps you prioritise essential expenses and allocate resources efficiently, building a habit of saving and strategic spending.

Allocating a larger share of your income towards EMIs might mean cutting back on discretionary expenses like dining out or luxury purchases. Over time, these small sacrifices can result in significant financial stability and wealth accumulation.

Asset Ownership Sooner

Paying higher EMIs means quicker loan repayment, allowing you to gain full ownership of your house sooner. This is particularly advantageous if you plan to sell or rent out the property, as you’ll have complete control over it without any liabilities.
For instance, if you intend to rent out your property after 15 years, closing the loan early ensures your rental income becomes pure profit, as it won’t need to be offset against ongoing EMIs.

Enhanced Tax Benefits

Under the Income Tax Act, 1961, home loan borrowers are eligible for tax deductions on both the principal and interest components of their EMIs:

• Section 24(b): Deduction of up to INR 2,00,000 annually on interest paid.
• Section 80C: Deduction of up to INR 1,50,000 annually on principal repayment.

By opting for higher EMIs, you can maximise these tax benefits. Conversely, with a low EMI, you may not fully utilise the available deduction limits, potentially missing out on tax savings.

Additional Considerations

While there are many benefits to paying a higher home loan EMI, it’s important to assess your financial situation before committing to higher payments. Ensure that increasing your EMI doesn’t strain your monthly budget or lead to financial stress. Alternatively, you may want to explore prepayment options, which can help reduce your outstanding balance and save on interest costs without committing to higher monthly EMIs.
However, before opting for prepayment, make sure to check if your lender imposes any prepayment penalties. Some lenders may charge a fee for early repayment, which could impact your overall savings.

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Conclusion

Paying a high home loan EMI can be a smart strategy for borrowers to repay their loans faster. By choosing this approach, you can reduce your loan tenure, save on interest costs, improve your creditworthiness, and gain full ownership of your home sooner.

If you’re considering purchasing a home, SMFG Grihashakti offers home loans of up to INR 1 crore* or up to 90% of the property value, competitive home loan interest rates, and flexible tenures of up to 30 years*. Use our home loan EMI calculator to estimate your monthly payments and apply online today!