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How to Reduce Home Loan Tenure without Putting Pressure on Your Budget?

How to Reduce Home Loan Tenure without Putting Pressure on Your Budget?

Who doesn’t want to compensate for a home loan beforehand? By compensating your home loan, you take a big liability off your reverse. This also ensures emotional and fiscal security for the family. The problem is that, for utmost middle-class families, the home loan quantum is a multiple of their periodic inflows. And you would not come across similar big quantities veritably frequently. Hence, compensating the entire home loan in one go is a stretch for the utmost of us.

still, as they say, little drops of water make the potent ocean. You don’t have to stay for one big payout to reduce your home loan term. You can do that by paying a little redundant every month and we will see how paying a little bit redundant over and above your EMI every month can bring down loan term.
Please understand this may not be the most practical approach. Making frequent overpayments can be a functional challenge. The idea is to demonstrate the difference indeed small payments can make.

Let’s make many hypotheticals first.

  • Loan quantum of Rs 50 lacs, Interest Rate of 8 per annum, Loan term of 20 times.
  • The interest rate for the loan remains constant during the loan term.
  • Yearly overpayments are permitted. The banks generally limit the number of overpayments in a time. still, you can navigate around this issue. So, if your bank permits repayment formerly every quarter, you can accumulate the redundant payment quantum every month in your bank account or in a liquid fund and use it to make the repayment formerly every quarter.

repayment formerly every quarter.
The EMI for the loan will be Rs 41,822. still, the loan term goes down by five months from 240 months to 235 months, If you pay 1 further every month( Rs 418 further every month).

How Does Loan Tenure Get Reduced?

This entire excess goes towards top repayment, reducing the loan outstanding at the end of the month( compared to the original amortization schedule). By doing this, you achieve two effects.

  1. Since the outstanding star is lower than as per the original amortization schedule, the interest portion of the EMI in the coming month also goes down, adding the top prepayment portion of the EMI.
  2. Over and over, you’re making redundant payments, all of which go towards top prepayment.

And this cycle goes on. With this, the star gets repaid briskly and the loan term comes down.
Let’s see how these minor redundant disbursements can affect the loan tenure. However, the lone term falls to 229 months, If you pay 2 extra. However, the lone term falls to 215 months, If you pay 5 redundant. I produce a table showing the reduction in loan term for colorful situations of redundant payments every month.

I understand paying 10 to 20 redundant may not be possible every month. And you may feel, for anything lower, the impact isn’t really meaningful. For case, if you pay 5 redundant every month, the loan term falls by just 2 times from 20 times to 18 times. Not really a big deal.
That’s right, but you just don’t have to limit yourself to this approach. You can use a portion from your coming periodic perk or insurance policy maturity proceeds to make further overpayments.

For case, if, along with 5 repayments every month, you were to compensate 1 of the top every 12 months, the loan gets over in 179 months.

  • With only 5 yearly redundant payments ( over EMI), the loan gets repaid in 215 months.
  • Only 1( of original loan quantum) prepayment every time, the loan gets repaid in 195 months.
  • If you use both styles together, the loan gets repaid in 179 months.

The loan mathematics remains the same. For the loan term to come down, you must make repayment( assuming the interest rate remains constant). Now, it’s a question of tuning your plan with your cash overflows. And it isn’t a moreover- or approach.
Editor’s Note Use our Home Loan EMI Calculator with Extra Payments to understand the impact of overpayments on your loan term.

3 thoughts on “How to Reduce Home Loan Tenure without Putting Pressure on Your Budget?”

  1. One other issue is that if you are in a problem where you will not have a cosigner then you may really want to try to exhaust all of your financial aid options. You will find many awards and other scholarships that will offer you funding to aid with institution expenses. Thanks alot : ) for the post.

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