A house adds directly to your assets and at the same time gives you a feeling of contentment. Taking home loan to buy a house for residential purpose is always a wise choice as it ends the dreadful cycle of heavy rent payment when giving you a place you can call your own. Yet it is extremely important to choose the right type of home loan with a suitable tenure and competitive interest rate. You have to plan all your expenses beforehand in order to pay the EMIs on time. In fact, just paying the EMIs is not enough, you should think of pre-paying your home loan partially or in full so as to reduce the financial burden earlier than expected.
Pre-closure of a home loan indeed saves you a big amount. Let us understand this with an example.
Suppose you take home loan at 8.5% for 20 years to purchase a house worth Rs 62 Lakhs; the loan amount is Rs 50 Lakhs. In this case, the total interest paid by you will amount close to Rs 54 lakhs. But if the same loan is taken for only 10 years, the total interest will be approximately Rs 24 lakhs. As you can see, there is a huge difference between interest payments (Rs 30 lakhs!) when you reduce the tenure by only 10 years. But if you have already taken loan for a longer period, you have the option of pre-closing it by making the payment in full. The sooner you close your home loan, the lesser interest you will have to pay.
Here are a few smart ways to help you reduce your overall home loan burden-
- Don’t Fall Trap to Pre-EMI Plans
- Make Good Use of Increased Disposable Income
- Channel your Windfall Gains
- Save to Achieve Pre-payment Target
- Use Loan overdraft facility
The bottom line is- if you can afford to make early payments towards the home loan and close it before the said tenure, you must. For any individual, reducing his/her liabilities should be the top priority. Home loan, being the biggest financial commitment, should be paid off as soon as possible. However, you must also consider the prepayment charges and weigh the choices.