The home loan is a crucial part of the home purchase for most individuals. As property prices are rising very rapidly, home loans have become an essential part of a home’s individuals purchasing decision. The borrowers are charged interest rates of usually 6% -10% by the lenders. The home loans are charged with a processing fee of usually 1% or more to the borrower. The home loans interest rates are calculated on a cumulative basis; thus, the borrower should consider the amount that the borrower pays to the lender and accordingly only should avail the loans. The bank finances 80% of the property value as a home loan to the borrower. The remaining 20% is of the property value should be paid as down payment value. The repayment of the home loans is 100% non-taxable under the income tax act 80C. The actual approval of the home loan depends upon the salary of the applicant. The higher the salary higher is the loan approved by the lender. The banks can approve the loans only against the good CIBIL score that means a credit score of a minimum of 700 points.
The repayment of loans installment at an early stage can help the borrower become early debt-free and can also save money on interest repayment. Some concession is granted to the borrowers against the early repayment of loans along with the principal plus the interest amount. Earlier, the banks use to charge a penalty on early repayment of loans, but in the recent few years, the banks do not charge any penalty and instead give a rebate to the borrowers against the repayment of loans at an early stage. Also, the CIBIL score of the borrower may get improved by the early repayment of the loans to the bank. Good or an excellent CIBIL score can help the borrower easily avail the loans shortly. The applicants with a good CIBIL score are amongst the most preferred customers of the bank for home loans.
Following are the ways in which home loans can be paid sooner
- Start a SIP parallel to the Home Loans
If the borrower invests in the systematic investment plan [SIP], then in that case, the borrower can get higher returns on the amount which is deposited in the SIP. After the borrower gains higher returns, the same amount can be utilized for the early repayment of the loans to the bank.
- Try making a higher amount as a down-payment
The borrower should avail the lower amount of loans as far as possible. The higher the principal amount higher is the interest repayment of the loans to the borrower. Like if the actual eligibility is 80%, then the borrower should avail only 40-50% as a loan and pay the remaining value as a down-payment. This strategy can help the borrower make early debt repayment and can become early debt-free.
- Try negotiating with the lender for lower interest rates against the good CIBIL score
The borrower should try to negotiate the interest rates in case of a good credit score. The market for home loans in India is fiercely competitive, and thus banks are in need of customers who are amongst the honest credit payers. Thus the bank may reduce the interest rates being charged, which can help the borrower reduce their liability and become early debt-free.
- Increase your home loan EMI as and how time passes
The borrower should try to increase the EMI as and how time passes. If paying lower EMI in the initial stage, the borrower should start paying higher EMI after the salary increment to save on interest repayment and become early debt-free.
Thus early repayment of loans can reduce the liability and burden on the borrower and can help become debt-free early. The borrower can save on income tax under the income tax act 80C up to Rs.2 lakh beyond the exemption limit of Rs.2.50 lakh. The borrower repays the home loans early can get good credit scores, leading to a clear way in future avail of loans.