A little can go a long way. If you have taken a large home loan and are wondering how to repay it quickly, then one small effort from your side can go a long way.
Pay one extra EMI every year.
That is, in a year, you will be paying 12 EMIs in total to repay your home loan. Now try to make it 13. In one of the months when you have some surplus at hand, pay one extra EMI.
How will this help?
Let’s see with a simple example.
Suppose you took a 20-year home loan of Rs 50 lakh. At an interest rate of 7.5%, your monthly EMI will come to be Rs 40,280.
Now if you repay your loan regularly, i.e. just 12 EMIs every year, for 20 years, then you will pay a total of Rs 46.7 lakh in interest on Rs 50 lakh loan principal.
Paying one extra EMI (of Rs 40,280) every year. This is how it impacts your loan repayment.
You clear your home loan in 16-17 years. You also pay interest of Rs 38.15 lakh only. So you not only save on the interest part, but also get free of your home loan in a fewer number of years. And that too by just paying one extra EMI every year. Not bad!
Many people want to prepay their home loans but don’t have a surplus every month. But people do get some extra funds every now and then (via bonuses, incentives, reimbursements) that can be used to make additional prepayments, like at least 1 extra EMI every year. This additional money might not be huge but it nevertheless helps clear off the loan quickly.
And what if you have extra surplus more frequently?
Say you can make an extra EMI payment every quarter. Then how will this fasten your loan repayment?
You will now clear your loan in just 11-12 years. You also pay an interest of only Rs 25.5 lakh (compared to Rs 46.7 lakh with no prepayment and Rs 38.15 lakh in case of one extra EMI every year).
Over time, paying one extra EMI (or even more) helps bring down the home loan principal amount, thereby substantially reducing your interest outgo through the loan tenure.
Further readings:
- Monthly EMI for Rs 25 lakh home loan
- Monthly EMI for Rs 30 lakh home loan
- Monthly EMI for Rs 50 lakh home loan
- Monthly EMI for Rs 40 lakh home loan
- Monthly EMI for Rs 1 crore home loan
- Home loan EMI Calculator (Free excel sheet download)
- Why home loan principal gets repaid slowly in initial years?
- How to quickly prepay Rs 50 lakh home loan in a few years only
- Short story of Indian real estate
- Real Estate vs Mutual Fund in India
- Smart home loan management
- Home loan tax benefits
- How much home loan to take?
- Never use all your savings for downpayment
- Choosing shorter home loan tenure
So that is how paying an Extra EMI every year helps you clear your home loan faster in India (2022).
To tell the truth, I am really glad that I came across your article because, for me, paying one extra EMI every year is a strategic and smart decision to get rid of debt burden as soon as possible. I think that it is really important to find ways to repay a home loan prematurely because it will free you from many problems and will help you spread your wings. From my point of view, It is always possible to find extra funds during the year to make an extra payment on the loan. Really often we do not think about our expenses and payments. With proper budget planning, you can save money for an extra payment, which will reduce the loan term and the repayment percentage. We just need to learn how to properly plan a budget and manage our finances because it will open many opportunities for us, teaching us financial discipline.