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Tips to Reduce Existing Home Loan Tenure

Updated: June 21, 2022
Tips to Reduce Existing Home Loan Tenure

It’s not a surprise that every home loan borrower wants to keep their home loan tenure short and have the property papers transferred in their name as quickly as possible.

However, it should be noted that a home loan is the biggest liability one takes on in their lifetime and a single mistake like the wrong home loan tenure with a higher EMI amount can make things worse.

In this blog article, we will discuss how to determine the home loan tenure and tips to reduce existing home loan tenure.

How to Determine the Right Home Loan Tenure?

Selecting the right home loan tenure entirely depends on the EMI affordability. Which basically means, the amount  you can spare from your income towards EMI payments after considering all the necessary expenses. The “necessary expenses” mostly consists of existing debt obligations, including that on credit cards.

Also, there are many rules of thumb that guide you through the process of determining the right home loan tenure. For example, the 50-30-20 rule of thumb  states that 50% of your income should be used for meeting household expenses, 30% towards debt repayments, and the rest 20% should be allocated for savings and investment.

Using the above reference to the rule of thumb, you can use the home loan EMI calculator to calculate the EMI amount with ease and also explore various repayment scenarios.

Tips to Reduce Your Existing Home Loan Tenure

One of the best ways to reduce your home loan tenure is to increase the EMI amount, but doing it without considering the impact on your finances can be dangerous.

The following are the tips to reduce your existing home loan tenure without much impact on your finances.

1. Step-up EMIs: The step-up EMI is a feature where you can increase the EMI amount at regular intervals throughout the loan tenure. For instance, you can increase the EMI amount every year as per the increase in your income level. To increase the EMI amount, you need to make an application with the lender requesting a change in the EMI amount. Once approved, the new adjusted EMI amount will start getting deducted from your bank account. This is usually covered under part payments, and is a scheme that most lenders allow, especially for salaried home borrowers.

Increasing the EMI payment by 5% annually can significantly reduce your home loan tenure.

2. Part Prepayment:Apart from making regular EMI payments towards your home loan, part-prepayment of the outstanding loan amount helps to close the loan account before the end of the loan tenure. Use Grihashakti’s free part prepayment calculator to get an idea of how making lump sum payments has an impact on reducing home loan tenure.

Part prepayment works when you have a lump sum amount of idle money, but is not equivalent to the outstanding loan amount. Since you are making the payments towards the principal outstanding, it helps to reduce the interest cost and reduces the loan tenure.

3 Balance Transfer your Home Loan: Balance Transfer of home loan means, paying off the existing outstanding home loan amount by taking off a new home loan from a new lender at attractive terms such as lower interest rate.

With lower interest costs on a loan, the loan tenure gets automatically reduced for the EMI that you were paying earlier. However, you should consider all the costs associated with balance transfer of the home loan before applying for home loan refinancing.

4.Restructuring your Home Loan: During extreme situations, some lenders may allow you to lower the home loan tenure. If such a facility is available, don’t hesitate to negotiate the loan terms with your lender to reduce the EMI burden. Be on top of the policy changes by the government and the RBI to negotiate a better deal on home loan repayments.

Conclusion

Reducing your home loan tenure significantly reduces your interest cost and the homeownership cost. But, before making any changes to your EMI payment structure, you should study the impact on your finances, credit score, and whether you can pay the increased EMI amount consistently till the end of the loan tenure.

If you are unsure, it’s better to continue with low home loan EMI and make part prepayments, as and when you have the lump sum amount of idle money.

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