Tips To Reduce The Principal Amount Of Your Home Loan

Owning a home is a dream for many of us. However, repaying a home loan can be a long and daunting process. It's essential to reduce the home loan principal amount as much as possible to save on interest payments and become debt-free sooner. The home loan principal amount is the initial sum borrowed from the lender. This article will explore the top 7 tips to help you reduce the home loan principal amount or how to reduce home loan interest.

1. Increase EMI Amount

One effective way to reduce the loan principal amount is by increasing your EMI. If your financial situation allows, consider increasing your EMI. Even a slight increase in your monthly payments can make a big difference in reducing the principal amount over time.

2. Make Bi-Weekly Payments

Another strategy to reduce the home loan principal amount is by making bi-weekly payments. Instead of paying monthly, consider splitting your monthly EMI into two smaller payments every two weeks.

3. Lump Sum Payments

If you receive any unexpected financial gains like a bonus or tax refund, consider channelling that extra money towards your loan principal amount. Making lump sum payments can significantly dent your outstanding balance and save on interest.

Remember to calculate your EMI before taking a loan. Let's understand how this would help.

Assume that you have taken an online home loan of ₹30 lakhs at a housing loan interest rate of 8% for 15 years. Using a home loan calculator, you can find that the exact EMI for this loan is approximately ₹28,787.

4. Refinance Wisely

Refinancing your online home loan or offline home loan can be a smart move to reduce the housing loan interest rate and lower your EMIs. When interest rates drop, it's worth exploring options to refinance your loan at a lower rate. 

Consulting with a financial advisor or using an online home loan calculator can help you make an informed decision.

5. Opt For A Shorter Loan Tenure

Still, wondering how to reduce home loan interest? Another tip on the list is to opt for a shorter loan tenure may significantly reduce the total interest paid over the life of the loan. 

Suppose you have taken a home loan of ₹40 lakhs at a housing loan interest rate of 7.5%. If you opt for a 15-year tenure instead of 20 years, even with higher EMIs, you can save over ₹10 lakhs in interest payments.

Before finalising the tenure, use a home loan calculator to compare options and choose one that aligns with your financial goals and capabilities.

6. Avoid Prepayment Charges

When selecting a home loan, ensure that your agreement does not come with hefty prepayment penalties. These charges can significantly increase the overall cost of the loan and limit your flexibility in managing your finances effectively.

7. Explore Accounts Linked To The Home Loan

Certain banks offer home loan-linked savings accounts, where any surplus in these accounts is directly adjusted against your principal amount in home loan. By utilising such accounts, you can effectively reduce the principal amount of your home loan.

Conclusion

Reducing your home loan principal amount is crucial to save on interest and become debt-free sooner. Remember, every small step counts in reducing your principal amount in home loan. With patience and diligence, you can achieve financial freedom and own your dream home outright.

If you're ready to take control of your finances and explore options to reduce your home loan's principal amount, Mahindra Finance offers various solutions tailored to your needs. Visit our website or reach out to our experts for personalised guidance on managing and reducing your home loan effectively.

FAQs

Q: How can I calculate my home loan EMI?

A: You can use an online home loan calculator that takes into account the loan amount, tenure, and housing loan interest rate to determine the Equated Monthly Installment (EMI) you need to pay.

Q: Can I reduce my home loan interest without increasing my EMIs?

A: While increasing the EMI is one effective way to reduce interest payments over time, there are other strategies like making lump sum payments or opting for shorter tenures that can help reduce interest without significantly impacting your monthly EMIs.

Q: Is it possible to change my EMI amount after availing a home loan?

A: Yes, it is possible to change your EMI amount by refinancing your home loan or requesting a modification from your lender.

Q: Is an online home loan application reliable?

A: Yes, online home loan applications are reliable if you choose a reputable lender. Make sure to verify the credibility of the lender before sharing any personal or financial information. Mahindra Finance offers a secure online home loan application process for your convenience.