Home loans are a popular financing option for those wanting to purchase a home and are a great way to make such a large purchase more manageable. However, with the recent increase in interest rates, the repayment tenure for many borrowers has stretched beyond their retirement age, leaving them in a tight spot.
Fortunately, there are some ways to reduce your home loan tenure and manage the financial burden. In this article, we will discuss how to reduce home loan tenure if your EMIs are stretching beyond retirement age.
Increase the EMI payments
Increasing the monthly EMI payments is the most effective way to reduce the home loan tenure. This can be done by increasing the amount you pay each month, or by using a lump sum such as a bonus or tax refund to make a one-time payment. This could help to significantly reduce the loan tenure and the total amount of interest you pay over its life.
It is important to consider your current financial situation before making the decision to increase your EMI payments. This will help to ensure that you can afford the payments and will not cause financial hardship in the future. Furthermore, you should also make sure that you inform your lender of any changes to your payments to ensure that your loan is properly managed.
Quoting his views, CA Kanan Bahl, a financial educator and growth consultant said, "Ideally, consider asking your Bank to increase EMIs with an increase in interest rates. This way, your EMIs won't stretch beyond retirement age. But just in case they have, consider part-paying home loan using your bonuses or increasing EMIs every year. Hiking EMIs by 10% every year can help you in closing your 20 year loan within 12 years."
Refinance your loan
Refinancing your mortgage can be an effective way to reduce your home loan tenure and save money in the long run. When you refinance, you may be able to get a lower interest rate, which will reduce the total amount of interest you have to pay and the amount of time it takes to pay off the loan.
Additionally, you may be able to switch to a different loan type with a more favorable repayment plan. Refinancing your mortgage can also provide access to cash through a home equity loan or line of credit. Before refinancing, make sure you understand all of the terms and conditions of the loan and the potential costs associated with it.
Prepayment of loan
By making a one-time payment to prepay your home loan, you can significantly reduce the tenure of the loan. This is an effective option if you have a lump sum available, such as a bonus or tax refund, and will reduce the overall loan amount.
This strategy can save you money in the long run by reducing the amount of interest you pay and shortening the length of the loan. Additionally, it will reduce the amount of time it takes to pay off the loan, so you can achieve home ownership faster. Prepayment is a great way to save money and reach your goal of financial freedom.
Adding his opinion, Mayur shah of Ocean Wealth Solutions mentioned, “Before deciding to pre-pay your home loan, it is important to consider the current market trends. RBI has increased the repo rate consistently over the past few months, to reduce the excess liquidity which was increased during pandemic from the market. This increase in repo rate has resulted in an increase in interest rates for home loans, leading to either an increase in EMI or a longer loan tenure.”
“It is important to understand that the repo rate may not remain high forever, and when the rate is reduced, your home loan tenure will be reduced automatically (if your loan is linked to the repo rate). However, if you have adequate provision for contingency, have invested for all goals properly and have an additional cash surplus, then it would be advisable to pre-pay your loan and reduce the loan tenure,” he added.
A balance transfer is an option to consider when you want to switch your existing loan to another lender. This is done by taking a loan from a different lender and using it to pay off the existing loan. The main advantage is that it can reduce your interest rate and reduce the loan tenure.
However, there may be additional costs associated with this, such as fees for the transfer and other administrative costs. It is important to consider all the costs before making a decision to ensure that you are getting the best deal for your situation.
Commenting on the same, Viral Bhatt of Money Mantra said, “If the EMI amount stretches beyond your retirement age, downsizing your property can be a good option. This will not only help you reduce your home loan tenure but also reduce your overall expenses in retirement. You can also consider refinancing your loan to reduce the interest rate and hence the EMI amount.”
“However, this option may come with costs like processing fees and legal charges. Additionally, if you have investments like mutual funds or fixed deposits, you can consider taking a loan against them to prepay your home loan. This can help you reduce your home loan tenure and also keep your investments intact,” he added.
Reducing the home loan tenure if your EMIs are stretching beyond retirement age is possible. There are several strategies that can be employed to reduce the loan tenure, however, each option comes with its own pros and cons and should be carefully considered before deciding which one is the best fit for your financial situation.