Home Loan Tricks: Nowadays, it is everyone’s dream to buy their own house, but sometimes due to less money, people resort to home loan. Many times this home loan becomes a burden for 25 years or more. By paying EMI every month, a large part of the salary goes away and the interest becomes much higher.
But the good news is that with some smart methods you can close the loan of Rs 50 lakh in just 10 years. Today we will tell you those three easy tips, by adopting which you can get out of the trap of loan. Anyone can adopt these tips with just a little planning.
Why should one not repay the home loan for a long time?
First of all, understand how home loan works. Suppose you have taken a loan of Rs 50 lakh, that too for 25 years and the interest rate is 8.5 percent. According to this, your monthly EMI will be around Rs 40,000. But in the initial years, most of this EMI goes towards interest. For example, in the first year you will pay a total of Rs 4.80 lakh, but the principal amount will be reduced by only Rs 60,000. The remaining Rs 4.20 lakh will be wasted just in paying the interest. This is the reason why long tenure loans should be avoided or efforts should be made to reduce them. Banks charge more interest initially, so it is beneficial to reduce the interest early.
Pay one extra EMI every year
The first tip is very simple. You will have to pay an extra EMI every year. Meaning, apart from your regular monthly installment of Rs 40,000, deposit an extra Rs 40,000 once a year. This money will be deducted directly from the principal amount and not from the interest. This will reduce the interest burden and your loan tenure will reduce from 25 years to 20 years. To adopt this method, you will not have to work very hard, just save an extra part of one month’s salary in a year or fill it by using the bonus you get in your job.
Increase your EMI by 7.5 percent every year
You can also increase your EMI by 7.5 percent every year. Suppose the first year EMI is Rs 40,000, then reduce it to Rs 43,000 in the next year. Then next year Rs 46,000 and so on. This increase will match your salary, as most working people get a 7-10 percent hike annually. With this strategy, the tenure of the loan will reduce from 25 years to only 12 years. You will have to pay less interest in less time and you will soon be free from the burden of loan.
Increase the amount along with EMI every year
The third tip is to adopt a combination of both – i.e. keep increasing the EMI by 7.5 percent every year along with an extra EMI. With this you will save lakhs and crores in interest. For example, you will pay around Rs 70 lakh interest in 25 years, but with this it can be reduced to less than half. But before making extra payment, check the pre-payment charge with the bank, because some banks charge 2-4 percent.
