Owning your dream home is a significant financial milestone, but the thought of a long home loan tenure can be daunting. The good news is that there are strategic ways to reduce the tenure of your home loan, allowing you to achieve full homeownership faster while saving on interest payments. In this blog, we’ll explore practical tips and strategies to help you cut down on your home loan tenure and enjoy a debt-free life in your own home sooner than you might think.
1. Increase Your EMI Amount:
One of the most straightforward ways to reduce your home loan tenure is to increase your Equated Monthly Instalment (EMI). Even a slight increase can significantly impact the duration of your loan. Calculate the additional amount you can comfortably pay each month and discuss it with your lender to adjust your EMI accordingly. To better understand how an increasing EMI can reduce your home loan tenure, consider the following table:
Home Loan Details:
- Loan Amount: Rs. 200,000
- Interest Rate: 6% per annum
- Loan Tenure: 20 years (240 months)
| Month | Opening Balance | EMI | Principal Payment | Interest Payment | Closing Balance |
| 1 | 200,000 | 1,500.00 | 248.99 | 1,251.01 | 199,751.01 |
| 12 | 198,628.69 | 1,500.00 | 257.42 | 1,242.58 | 198,370.27 |
| 120 | 174,415.06 | 1,500.00 | 349.16 | 1,150.84 | 174,065.90 |
| 196 | 71,830.72 | 1,500.00 | 1,428.16 | 71.84 | 70,402.56 |
In this table, you can see the impact of increasing the principal payment component of your EMI. With the increased EMI, the loan tenure is reduced from 20 years to 16 years and 4 months. Not only does this result in earlier loan repayment, but it also reduces the total interest paid over the life of the loan.
2. Make Bi-Weekly or Fortnightly Payments:
Instead of paying your EMI monthly, consider making half of your EMI amount every two weeks. Over the course of a year, this results in 26 half-payments (equivalent to 13 full payments). This extra payment each year can make a substantial difference in reducing your loan tenure.
3. Use Windfalls and Bonuses:
Whenever you receive unexpected income, such as a bonus, tax refund, or inheritance, consider using a portion of it to make lump-sum payments towards your home loan principal. Reducing the principal amount directly shortens the loan tenure.
| Home Loan Principal Amount | Loan Tenure (Years) | Reduced Principal Amount After Payment | New Loan Tenure (Years) |
| ₹10,000,000 | 20 | ₹8,000,000 | 16 |
| ₹10,000,000 | 20 | ₹6,000,000 | 12 |
| ₹10,000,000 | 20 | ₹4,000,000 | 8 |
In the above table, we can see that a reduction in the home loan principal amount directly shortens the loan tenure. For example, if a borrower has a home loan of ₹10,000,000 for 20 years, and they receive a windfall of ₹2,000,000, they can reduce their principal amount to ₹8,000,000. This will reduce their loan tenure to 16 years, assuming that they keep their EMI the same.
4. Refinance at Lower Interest Rates:
Keep an eye on the interest rate market. If you find an opportunity to refinance your home loan at a lower interest rate, it can lead to reduced EMIs and a shorter tenure. However, do assess the refinancing costs to ensure it’s financially viable.
5. Opt for a Shorter Loan Tenure at the Start:
If you’re planning to take out a new home loan or are in the process of selecting a loan, opt for a shorter loan tenure from the beginning. Shorter tenures often come with lower interest rates and can save you a significant amount in interest over time.
| Home Loan Principal Amount | Loan Tenure (Years) | Interest Rate | New Interest Rate | New Loan Tenure (Years) |
| ₹10,000,000 | 20 | 9% | 8% | 18 |
| ₹10,000,000 | 20 | 9% | 7% | 16 |
| ₹10,000,000 | 20 | 9% | 6% | 14 |
In the above table, we can see that refinancing a home at a lower interest rate can reduce the loan tenure. For example, if a borrower has a home loan of ₹10,000,000 for 20 years at an interest rate of 9%, they can refinance to a new loan with an interest rate of 8%. This will reduce their loan tenure to 18 years, assuming that they keep their EMI the same.
6. Home Loan Bi-Annual or Annual Review:
Periodically review your home loan with your lender to explore options for increasing EMIs, reducing interest rates, or switching to a different repayment plan.
Conclusion
Reducing your home loan tenure is not only a financially savvy move but also brings you closer to the freedom of owning your home outright. By implementing these strategies, you can take charge of your financial future and enjoy the peace of mind that comes with becoming a debt-free homeowner sooner than you thought possible. Remember, every step you take towards reducing your home loan tenure is a step closer to making your homeownership dreams a reality.
