HDFC Bank, India’s largest private sector lender, has been gradually raising its repo rate-linked home loan interest rates since January of this year. Despite the Reserve Bank of India (RBI) maintaining the repo rate unchanged since April of the previous year, HDFC Bank has increased its rates. As the name implies, repo rate-linked home loan rates are supposed to adjust in line with changes in the repo rate.
However, this increased interest rate results in a higher loan interest cost, prompting borrowers to seek ways to pay off their debt at an earlier stage in life. There are various strategies you can use to pay off your home loan more quickly and save a substantial amount on interest over the loan’s duration. Here are some effective approaches:
Make a larger initial payment: This decreases the total loan amount you need to borrow initially, leading to reduced interest payments over the loan’s duration.
Choose a shorter loan term: Choosing a 15-year loan over a 30-year loan will necessitate higher monthly payments, but you’ll pay off the loan more quickly and save on interest in the long term.
Make extra monthly payments: Contributing a bit more each month, beyond the minimum required payment, can substantially decrease the loan principal and shorten the repayment period.
Opt for bi-weekly payments: Some lenders permit bi-weekly payments. This boosts the number of payments you make annually, effectively expediting the repayment process.
Round up your monthly payment: Increase your monthly payment to the nearest hundred or thousand and allocate the extra amount towards the principal. This consistent, modest increase can result in considerable savings over the long term.
Refinance at a lower interest rate: If current interest rates are lower than when you initially took out your mortgage, consider refinancing with a different lender offering a reduced rate. This can substantially decrease your monthly payments and the overall interest paid throughout the loan duration. Keep in mind there might be closing costs related to refinancing, so consider this when deciding.
Use windfalls to reduce the principal: If you get a bonus, tax refund, or any other unexpected income, think about applying it to your home loan principal. This reduces your outstanding balance and saves you on interest.
Investigate tax advantages: Depending on where you live, you might qualify for tax deductions on mortgage interest and property taxes. Consult with a tax advisor to grasp how these deductions can work to your advantage.
Also Read: Looking for a home loan? Here are 4 things you need to know about processing fees
There are alternative methods to lessen your home loan burden, even with the impact of increased interest rates.
Avoid incurring new debt: Refrain from taking on additional debt while repaying your home loan. This will allocate more funds toward your mortgage payments and help you avoid financial overextension.
Regularly review your budget: Consistently assess your budget and identify areas where you can reduce expenses. Redirect these additional funds towards your home loan to expedite the repayment process.
Stay in touch with your lender: Keep yourself updated on your loan options and the advantages of prepayment. Consult with your lender about your objectives to determine if there are any home loan prepayment restrictions or special programs available to assist you in paying off your loan more quickly.
By applying these strategies and customizing them to fit your financial situation, you can efficiently pay off your home loan more quickly and save a significant sum on interest over time. If you’re new to borrowing and seeking ways to lead a debt-free life, consulting a financial advisor can assist you in planning to eliminate your loan obligations early on in life.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 05 Apr 2024, 08:38 AM IST