How to Repay a 25-Year Home Loan in Just 10 Years
When you take a home loan, the biggest stress is repaying it, especially if the tenure is up to 25 years. Assume that you take a home loan of Rs 40,00,000 at 9% interest for a period of 25 years. Your monthly EMI will be nearly Rs 33,000. In the first year, you will pay around Rs 4 lakh, but only about Rs 44,000 of that will lower your principal. The remaining Rs 3.58 lakh will go for paying your home loan interest.
If you want to clear your debts faster and save on the interest amount. There are a few smart strategies that can help you become debt-free faster. Using these strategies, you can bring down your loan tenure from 25 years to just 10.
Strategy 1: Pay 1 Extra EMI Every Year
Instead of paying 12 EMIs in a year, try to pay one extra EMI, which will make 13 in total. This extra payment goes towards the principal amount, which helps bring to reduce it down. Even though it is just one extra payment a year, it can make a big difference over time. For example, if you do this every year, you could cut your loan term from 25 years to 21 years and save around Rs 7 lakh in interest.
Strategy 2: Increase Your EMI by 7.5% Every Year
As your income grows, you should grow your EMI too. Start with your regular EMI like Rs 33,000 and increase it by about 7.5% every year. So, in the second year, you will have to pay Rs 35,475, then Rs 38,000 in the third year, and so on. By doing this, your major portion of payment will go towards the principal amount each year. Using this strategy, you can reduce your loan tenure from 25 years to approximately 12 years.
Strategy 3: Combine Both Strategies
The best approach is to combine both strategies by paying one extra EMI each year and also increasing your EMI by 7.5% annually. The extra EMI helps in reducing the principal amount faster. On the other hand, increasing the EMI speeds up repayment every year. When you do both, you could finish a 25-year loan in just 10 years. This saves a huge amount in interest.
