Home loans are a long-term commitment, with the tenor extending up to 25 to 30 years. Since home loans are also big-ticket loans, it wouldn't be wrong to say that irrespective of how well a home loan borrower plans them and their repayment, the loan and the ensuing EMI have an impact on a person's lifestyle. Therefore, most home loan borrowers try their best to become debt-free as quickly as possible. They try to use the money from bonuses, FD maturities, share sell, etc. to prepay or foreclose their loan. Prepayment refers to the process of partly repaying one's loan to bring down the loan amount and therefore, either the loan EMIs or the loan tenor. Foreclosure refers to the process of repaying the entire loan amount and becoming completely debt-free before the stipulated period.
When home loan borrowers foreclose their loans, banks and lenders lose money. Thus, until a few years ago, when borrowers opted for foreclosure, lenders would charge a hefty penalty. However, a few years ago, the Reserve Bank of India came up with a new mandate which has made it possible for individual borrowers on floating interest rate home loans to foreclose or prepay their loan without paying any penalty. However, borrowers on a fixed fee of interest must still pay a fee or penalty fee if they decide to opt for repayment.
Home loan repayment makes sense when a borrower is still in their early years of loan tenure, i.e. when the interest component of the loan is still considerably high. As the years advance, the interest component goes down and the principal component goes up therefore, opting for home loan repayment during the later years of one's loan tenure, when one has already paid a considerable portion of the interest does not make sense. Home loan borrowers planning to go for prepayment or foreclosure are advised to use a home loan repayment calculator to figure out the right time for home loan foreclosure and save as much money as possible.
What is a Home Loan Repayment Calculator?
A home loan repayment calculator is an online tool that allows a home loan borrower to understand whether opting for foreclosure would be the right choice for them. Most home loan repayment calculators ask borrowers to share the following snippets of information: loan amount, loan tenor, the interest rate at which the borrower is repaying the loan, the number of EMIs they have paid to date, and the month in which they want to foreclose their loan. As soon as one enters these details, the home loan repayment calculator tells them the total interest they will save as well as the change in their loan tenor in case they decide to go for prepayment or foreclosure.
Home loan prepayment calculators are easily available on the Internet. You should also be able to find one on your lender's website. So, use them to your advantage if you are planning to opt for home loan foreclosure.
If you are reading about home loan prepayment and foreclosure and home loan repayment calculators, chances are you are already tired of your EMIs and want to do away with the burden of them as soon as possible. In this case, here are a few tips that will help you repay your loan and become debt-free quickly.
Quick Tips on What You Can Do to Become Debt-Free Quickly
- If you want to close your loan before the stipulated time period, you must increase your EMI amount to match any increase in your yearly income. This will help you pay off your loan before the stipulated time without feeling burdened.
- If you are salaried, use money from bonuses and incentives to make prepayments. This will help you reduce your principal amount and become debt-free quickly. You can start by making small prepayments and increasing the prepayment amount with each passing year, especially if you are an individual borrower on floating interest rates.
- If you have invested in any interest-saving schemes, such as mutual funds and pension schemes that have not delivered good returns for an extended period of time, you can liquidate them and use the money availed of to make prepayments.
- Yet another thing you can do to become debt-free quickly is to start taking budgeting seriously. Millions of people around the world follow this approach. When a home loan borrower follows this approach to become debt-free, the first thing they must do is figure out how they are spending their money. After this, from the list of things that are consuming one's money, the home loan borrower must separate essentials from non-essentials. Once the borrower knows clearly how they are spending their money, they can easily cut down on unnecessary expenses and use the extra money to either increase their EMI amount or make lump sum payments towards home loan repayment.
- Lastly, a borrower can become debt-free sooner by opting for a home loan balance transfer. Home loan balance transfer refers to the process of transferring one's home loan from one lender to another offering better home loan interest rates or other better loan terms and conditions. When the effective interest rate on a home loan goes down, EMIs go down too. This way, if the borrower continues to pay the EMI amount they were paying before or something higher, they would become debt-free much sooner.
Final Words
A home loan is a huge commitment and borrowers must try their best to get done with this commitment as soon as possible. Once you are free of the EMI burden and have successfully built an asset in your name, you can start living your life luxuriously again. However, please do keep in mind that home loan repayment takes some planning and borrowers must use a home loan EMI calculator to help them with repayment planning.
