How to Pay Extra EMI for a Home Loan?

Home loans are high-value debts that can last for decades. Depending on your needs, your home loan can range from a few lakhs to a few crores of rupees, greatly impacting your finances for the foreseeable future. 

Hence, paying it off as soon as possible is the best option. And, one of the easiest ways to repay the loan quickly is to pay extra home loan EMIs.

What Does Paying Extra EMI for a Home Loan Mean?

When you take a home loan from a lending institution, you must repay it in monthly installments. Hence, yearly, you will be paying 12 EMIs to slowly pay off the entire loan. 

In case you have extra cash, you can make one or more additional payments to the lender that will be considered as a repayment. Not only will this help you close the loan off early, it will also remove some financial burden off you in the long run.

How to Pay Extra EMI for a Home Loan?

Follow the below steps to pay extra EMI on your home loan.

• The first and foremost step is to check if you can afford to pay an extra EMI on your home loan. To do that, you have to evaluate your financial situation and see how much you can pay towards your extra EMI.

• Next, check with your lender if extra payment is allowed. Some lenders might charge an extra fee for loan pre-payment. Get all the details right before proceeding further. 

• Once everything is aligned with the lender, choose the mode of payment and pay your extra EMI

It can be taxing to pay an additional EMI as soon as you get a home loan. However, with time, you can make additional payments towards the EMIs. 

Though paying a higher EMI is helpful to your home loan, you should consider your financial situation before increasing your EMI. Your EMI should not be a strain on your budget or limit your regular expenses. 

How to Reduce Home Loan EMI?

Paying an extra EMI on your home loan will help you relieve stress in the future and minimize the load of paying EMIs over time. The following approaches will assist you with home loan repayments.

• Loan Pre-Payment

Prepaying the loan can help you save money on interest payments. However, you should confirm this with the lender, as some charge a penalty or require you to pay a fee if the interest rate is fixed. Pre-closure charges are not imposed for floating rates.

• Short Loan Tenure

The longer the home loan term, the higher the lender's interest rate. If you are financially secure, go for a shorter tenure. This will ensure that the Home Loan payback procedure gets done quickly and the interest rate remains low.

• Higher EMI

If you are financially stable, you can choose to increase the EMI or pay more than one EMI per year. Interest outflows will be significantly reduced. Assess your financial requirements and then determine how much additional EMI you can afford if your salary increases or you receive an annual bonus. Even a tiny sum can make a significant difference in the length of your loan.

• Lower Interest Rates

Check to see whether other lenders are giving cheaper interest rates, so you can quickly renegotiate or transfer your home loan balance. Refinancing can be a good move since it decreases the interest burden by transferring the outstanding principal amount from the old lender to a new lender at a reduced rate. This is a simple technique to save on interest.

• Down Payment

Home buyers are normally obliged to make a down payment at the time of purchase. If you can provide a larger down payment, the loan amount can be decreased. This will further reduce the interest rate, and the Home Loan repayment will be quicker.

Extra EMIs on Home Loans: Why Should You Pay Them?

Here are a few benefits of paying an extra home loan EMI.

• Faster Loan Repayment

Higher EMIs help close the loan faster, even before the end of your tenure. This would allow you to become debt-free faster, lower your loan burden, and help you achieve long-term financial stability. While you may have to compromise a little, it is a worthy payoff in the long run. 

• Save On Interest

Your EMI comprises two components: principal and interest. The longer the tenure, the greater the interest rate. If you choose a lower EMI, the term will be longer, resulting in a rise in the interest rate and overall cost of borrowing. 

On the other hand, paying a larger EMI will allow you to save money on interest. You can use a home loan EMI calculator to calculate the difference in your final payback amount by entering the tenure as a variable. A larger EMI will allow you to repay the loan faster and save on the interest component. 

• Improves Credit Score

You can improve your credit score by making larger EMI payments and paying off your home loan early. Paying a larger EMI improves your repayment capacity and creditworthiness. Lenders also perceive you to be a trustworthy borrower, which increases your chances of loan approval in the future.

• Tax Benefits

Sections 80C and 24(b) of the Income Tax Act of 1961 allow you to claim tax deductions on home loan repayments, including principal and interest. 

Interest repayment qualifies for a tax advantage of Rs 2 lakh. The principal amount qualifies for a tax advantage of Rs 1.5 lakh.

However, many borrowers are unable to take advantage of this because of less EMI and a higher EMI can help you maximize the tax benefits.

Home Loan EMI Calculator

Do you want to start paying a higher EMI but are having trouble calculating the precise amount? 

Use Moneyview's home loan EMI calculator to help you decide the amount. It is quite simple to use. Enter the principal amount, interest rate, and loan tenure, and the calculator will display the EMI amount within seconds.

Over time, paying more EMI reduces the principal amount of your home loan, greatly cutting your interest payments over the loan's term. While many people want to do so, they don't have enough money each month. 

In such instances, save a little each month and make additional prepayments when you obtain more income through bonuses, incentives, reimbursements, and so on, for at least one more EMI every year. This additional money may not be large, but it helps to pay off the debt swiftly.