HDFC Bank, India’s largest private sector lender, has been gradually increasing its home loan interest rates linked to the repo rate since January of this year, despite the Reserve Bank of India (RBI) maintaining the repo rate unchanged since April of the previous year. As the name suggests, repo rate-linked home loan rates are expected to adjust with changes in the repo rate.
However, this rise in interest rates leads to higher loan interest costs, prompting borrowers to explore ways to pay off their debt earlier in life. There are several effective strategies you can employ to accelerate the repayment of your home loan and save a substantial amount on interest over the loan term. Here are some effective approaches:
- Make a larger initial payment: By reducing the total loan amount borrowed initially, you can decrease interest payments over the loan term.
- Choose a shorter loan term: Opting for a 15-year loan instead of a 30-year loan will result in higher monthly payments but will help you pay off the loan quicker and save on interest in the long run.
- Make extra monthly payments: Contributing more than the minimum required payment each month can significantly reduce the loan principal and shorten the repayment period.
- Opt for bi-weekly payments: Some lenders offer bi-weekly payment options, increasing the number of payments made annually and speeding up the repayment process.
- Round up your monthly payment: Increasing your monthly payment to the nearest hundred or thousand and applying the extra amount towards the principal can lead to substantial long-term savings.
- Refinance at a lower interest rate: If current interest rates are lower than when you initially took out your mortgage, consider refinancing with a different lender offering a reduced rate, potentially reducing your monthly payments and overall interest paid.
- Use windfalls to reduce the principal: Applying bonuses, tax refunds, or any unexpected income to your home loan principal reduces the outstanding balance and saves on interest.
- Explore tax advantages: Depending on your location, you may qualify for tax deductions on mortgage interest and property taxes, consulting with a tax advisor can help you understand how these deductions can benefit you.
There are alternative methods to lessen your home loan burden even with the impact of increased interest rates:
- Avoid incurring new debt: Avoid taking on additional debt while repaying your home loan to allocate more funds towards mortgage payments and prevent financial overextension.
- Regularly review your budget: Continuously assess your budget to identify areas where expenses can be reduced and redirect these funds towards your home loan to expedite repayment.
- Stay in touch with your lender: Keep informed about your loan options and prepayment benefits by consulting with your lender to determine if there are any prepayment restrictions or special programs available to help you pay off your loan faster.
By implementing these strategies and tailoring them to your financial circumstances, you can efficiently pay off your home loan sooner and save a significant amount on interest over time. If you’re new to borrowing and seeking ways to lead a debt-free life, consulting a financial advisor can help you plan to eliminate your loan obligations early in life.
