Buying a home is a dream for many, but a home loan can be a big financial responsibility. One of the best ways to make it easier is by reducing the loan amount. When you lower the amount you borrow, the interest you have to pay also becomes less, making the loan more affordable. Here are some good ways to reduce your home loan amount and pay it off faster.
A simple yet effective way to reduce the principal amount is by making a larger down payment at the time of purchasing the home. Banks and financial institutions typically finance up to 75%-90% of the property value, meaning you need to pay at least 10%-25% as a down payment. If possible, try to pay more than the minimum required down payment, as this will directly reduce the amount you borrow, thus lowering your principal.
A shorter loan term means higher monthly payments, but you will pay less interest overall. This is because interest is calculated on the remaining loan amount, and a shorter term helps you pay it off quicker. Before choosing this, make sure your income can handle the higher payments without causing financial stress.
Prepayments mean paying extra money towards the loan principal, besides your regular monthly payments. This reduces the loan amount and lowers the interest you need to pay. Many lenders let you make partial prepayments without any extra charges, especially after a few years. You can use bonuses, salary increases, tax refunds, or extra income to make these extra payments and reduce your loan amount.
Different banks and lenders offer home loans with different interest rates. A lower interest rate means you will pay less interest, which reduces the total cost of the loan. Before you choose a loan, compare interest rates from different lenders, and try to negotiate for a lower rate if you have a good credit score and steady income.
Many banks let you raise your EMI payments as your income increases. By doing this, more of your payment goes towards reducing the loan amount, helping you pay it off quicker. For example, if you get a salary increase, think about raising your EMI. Even a small increase can save you a lot of money on interest.
If your current lender has a high interest rate, you can move your loan to another lender with a lower rate. This is called a home loan balance transfer. It means transferring your remaining loan to a different bank that offers better terms. But, make sure to check for any fees, charges for closing the loan early, or other hidden costs before making the transfer.
Any extra money you get, like a bonus, inheritance, income from investments, or profit from selling property, can be used to make a big payment towards your loan. Instead of spending this extra money on things you don't really need, using it to reduce your home loan amount can be a smart way to manage your finances.
Some banks offer home loan overdraft accounts where you can deposit your savings. The money you keep in this account reduces the loan amount that earns interest. The more money you add to the account, the less interest you have to pay. This is a good option for people with extra income who want to reduce their loan without making a direct extra payment.
If possible, make one or two extra EMI payments every year. Since the principal reduces faster, the interest burden also decreases significantly over time. This method is particularly helpful in reducing the total duration of the loan.
If you’ve been a loyal customer and have a good history of repaying your loan, your lender might offer you better terms. Some banks reduce the interest rates for borrowers with good credit scores. If you’ve been paying on time, try asking for a lower interest rate, which can help you pay off the loan faster.
| Strategy | Details |
|---|---|
| Make a Higher Down Payment | Pay more than the minimum required down payment to reduce the loan amount. |
| Opt for a Shorter Loan Tenure | Shorter tenure means higher EMIs but lower overall interest. |
| Make Prepayments | Pay extra towards the principal whenever possible to reduce the loan amount. |
| Choose a Lender with Lower Rates | Compare and select a lender with a lower interest rate to reduce total cost. |
| Increase EMI Over Time | Raise your EMI as your income increases to pay off the loan faster. |
| Balance Transfer to Lower Rate | Transfer your loan to a lender with better interest rates, if applicable. |
| Use Windfall Gains for Repayment | Use bonuses, inheritance, or extra income to make significant payments. |
| Linked Home Loan Account | Deposit savings in a linked account to reduce the loan amount and interest. |
| Make Extra EMI Payments Annually | Make one or two extra payments annually to reduce loan duration and interest. |
| Negotiate with Your Lender | Ask for better terms (lower interest rates) if you have a good repayment history. |
Reducing the loan amount can help you become debt-free faster. You can do this by making a larger down payment, increasing your EMIs over time, making extra payments, choosing a shorter loan term, or finding a lender with lower interest rates. These smart financial moves can help you pay less interest and save a lot of money in the long run.
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Making prepayments, increasing EMI amounts, and opting for a shorter tenure are some of the best ways to reduce the principal amount.
Higher EMI payments allow you to repay the principal faster, reducing the interest component over time.
Yes, prepaying the home loan helps in reducing the principal amount, leading to lower interest payments and a shorter loan tenure.
A home loan balance transfer allows you to shift your existing home loan to another lender offering a lower interest rate.
Many banks do not charge penalties on prepayment, especially for floating-rate loans. However, fixed-rate loans may have prepayment charges.
Yes, if you have a good credit history and stable financial profile, you can negotiate with your lender for a lower interest rate.
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