Friday, February 26, 2021

Tips to close your home loans early

Many home loan buyers take loans for a longer span but sometimes re-pay their loans on a yearly basis so as to reduce the burden of debt as well to save on interest being charged on the loans. The early re-payment of debt can help the applicant improve their CIBIL score thus making eligible a clear path for future to obtain loans as well as avail any other credit facilities like a credit card, car loans, personal loans, micro-financing loans, or loans for business purpose in the SME(small-medium enterprise) category loans as well as any of the postpaid credit facility being available in the market. 

Benefits of early closure of Emi’s:

Improvement in CIBIL ratings: The CIBIL score may be rated to excellent if the applicant does early payment of loans.

Clear path to future credit facility: Applicant can avail credit facility from any of the financial institutions very easily as it generates confidence amongst the lenders about the applicants honesty and repaying capacity.

Tax benefit on loan application: The applicant can claim tax benefit while filing income tax returns even on early re-payment of loans.

Reducing Debt liability: The applicant can free up from the debt pile and can plan with the future planning for a family or plan some other liabilities like children’s education, retirement planning, daily household expenses, investments for the future liabilities, or for home renovation. etc.

Overall savings in interest paying liability: The applicant can save in lakhs on interest liability thus helping the applicant save money for other expenses & liabilities.

Basic Tips for early closure of loans:

The applicant should avail a limited amount of credit limit so as to make early re-payment of loans and reduce the debt liability.

The applicants who have a sufficient amount of bank balance can do early re-payment of loans through the past savings. Thus saving on interest repayment liability.

Shorter duration home loan: The applicant can avail shorter duration by paying higher EMI on a monthly basis.

Increase your EMI with time: As and how time passes the applicant can scale up the installments for early repayments. This can help the applicant become debt-free.

Prepayment of loans:  The pre-payment of loans can help reduce debt liability and less interest repayment amount to be chargeable.

Balance transfer for balance interest rate: In this process the applicant can avail balance transfer benefit, wherein you move the outstanding loan amount to another lender offering lower interest rates. However there should be lower interest rates applicable on transfers.

Cost of loan should not be high compared to current home loan rate.

Cost of loan transfer should not be less in case of loan processing fees and other charges.

Should provide to-up home loan, if the request is denied by the current lender.

Should offer additional features and benefits.

Transferring the balance home loan in the initial years of the home loan in the initial period of tenure will help save substantially over the years. And while doing so you should extend your tenure. This is so that the borrowers pay the majority of the interest component during the initial years of the loan thus a home loan balance transfer can lead to huge savings. Keeping the new tenure the same as the previous tenure will save you from extra interest payment.

However, if the applicant is under financial stress, you can extend the loan tenure, as it would reduce the EMI burden. And you always have the option of pre-payment in case of obtaining higher increment or income from the sale of assets or bonuses received from the company. The applicants should opt for home loan transfers only when they applicant is having sufficient savings.

Start SIP’s for early repayment:

The applicant can start their savings by putting the money in a systematic investment plan on a monthly basis and then once a sum gets accumulated together the applicant can transfer the amount along with the interest to repay installments. Thus helping to repay loans with the principal amount in a faster way and save on interest amount.

Thus we can conclude that if the applicant returns the principal amount along with the interest to the bank/financial institution in an early stage the applicant can save a huge sum on interest liability and also avail tax benefit. Along with that, the applicant can get a good credit score on CIBIL ratings thus helping the future credit benefits with lower interest rates and higher credit available.