How To Clear Home Loan Faster: Lower Your Interest Burden

Owning a home is a dream for many Indians, but the long-term financial commitment of a home loan can be daunting. With tenures often stretching up to 20 to 30 years, the total interest paid can sometimes rival or even exceed the principal amount. 

Fortunately, there are smart, actionable strategies to reduce this burden significantly – all you need to know is how to clear the home loan faster. From choosing the right tenure to refinancing and prepayment, here are a few expert-backed methods to help you save big on your home loan.

Here are a few smart tips you can choose and combine to reduce your interest burden on a home loan and save in the long term. 

• Choose a Shorter Loan Tenure

One of the most effective ways to reduce your total interest outgo is by opting for a shorter loan tenure. While this increases your monthly EMI, it drastically cuts down the interest paid over the loan’s lifetime. 

For example, a ₹50 lakh loan at 8.75% interest over 20 years results in ₹50.29 lakh in interest. The same loan over 10 years would incur only ₹22.76 lakh in interest. That’s a saving of over ₹27 lakh.

Tip: Use an EMI calculator to find a tenure that balances affordability with interest savings.

• Make Regular Prepayments

Prepaying your home loan, especially in the early years, can significantly reduce your interest burden. Since EMIs are interest-heavy in the initial phase, even small prepayments can make a big difference.

Now the question is how to pay extra EMI for a home loan? First, you need to verify with your lender if there are any penalties for prepayment. If not, then you can make payment through the lender’s mobile app, web login in, or by visiting the bank.

Benefits:

• Reduces the principal faster

• Lowers the total interest payable

• Reduces the home loan tenure

Lenders in India do not charge prepayment penalties for floating-rate loans. 

• Pay One Extra EMI Every Year

If you are wondering how to repay home loan faster and easily, then this option is worth considering. A simple yet powerful trick is to pay one additional EMI each year. This small step can reduce your loan tenure by several months and save you lakhs in interest.

For instance, on a ₹50 lakh loan with a 20-year tenure, if you pay extra EMI for the home loan even once annually can reduce the tenure by nearly 2 years and save over ₹5 to ₹7 lakh in interest.

Your credit score plays a crucial role in determining your home loan interest rate. A score above 750 can help you negotiate better terms with lenders.

• Pay EMIs and credit card bills on time

• Avoid multiple loan applications in a short span

• Keep credit utilisation below 30%

Regularly checking your credit report also helps you spot errors that could affect your loan eligibility. This way you can easily apply for a more affordable home loan with manageable interest rate. 

Increasing your credit score over time can also help you refinance your home loan at a lower interest rate during the tenure. 

• Increase Your EMI Annually

Want to know how to close a home loan early in the easiest way possible? As your income grows, consider increasing your EMI by 5 to 10% each year. This strategy helps you repay the home loan faster without straining your finances.

Example: If your EMI is ₹40,000 and you increase it by 10% annually, you could close a 20-year loan in just 12 to 14 years.

• Refinance at a Lower Interest Rate

Home loan balance transfer is a smart move if your current lender is charging a higher interest rate. By switching to a lender offering a lower rate, you can reduce your EMI and total interest burden.

Things to consider:

• Compare processing fees and legal charges

• Ensure the new rate is significantly lower

• Check if the savings outweigh the switching costs  

• Opt for a Higher Down Payment

A substantial down payment reduces the loan amount. This directly lowers your interest burden. If you can afford it, aim for a down payment of 25% to 30% instead of the minimum 20%.

• A lower loan amount ensures lower EMIs

• Better chances of loan approval

• May qualify for lower interest rates 

• Align EMI with Income Growth

Plan your EMI structure to match your expected income growth. Start with a manageable EMI and gradually increase it as your salary rises. This approach ensures financial comfort while accelerating loan repayment.

With these smart tips, you can decide how to pay your home loan faster and without straining your budget. Here’s a quick recap of the smartest strategies on how to clear a home loan faster:

• Opt for a shorter tenure if affordable

• Make regular prepayments and one extra EMI annually

• Increase your EMI with income growth

• Refinance when better rates are available

• Make a higher down payment to reduce the principal

• Keep your credit score healthy for better negotiation power

By implementing these expert-backed tips, you can not only reduce your financial stress but also achieve your dream of a debt-free home much sooner.

Reducing your home loan interest burden is not just about choosing the right lender. It's about actively managing your loan throughout its tenure. Whether it’s through prepayments, refinancing, or strategic EMI planning, each step you take can lead to substantial savings.

1. How can I reduce my home loan EMI or interest payments?

You can reduce your EMI or interest payments by opting for a shorter loan tenure. A higher down payment and maintaining a good credit score also help in securing better loan terms. Wondering how to reduce home loan tenure? You can do that by making regular prepayments, increasing your EMI annually, or refinancing your loan at a lower interest rate. 

2. Is part-prepayment a good option for reducing interest?

Yes, part-prepayment is an excellent strategy to reduce your home loan interest payment. It lowers the principal amount, which in turn reduces the interest payable over time. Making prepayments early in the loan tenure yields the most savings, and many lenders don’t charge penalties for home loans on floating interest rates.

3. How does home loan balance transfer help in lowering interest?

A home loan balance transfer allows you to shift your loan to another lender offering a lower interest rate. This reduces your EMI and total interest outgo. However, it’s important to factor in processing fees and other charges to ensure the transfer results in net savings.

4. Does a higher credit score reduce home loan interest?

Yes, a higher credit score (typically above 750) can help you secure lower interest rates on home loans. Lenders view high scores as indicators of financial reliability, which makes you eligible for better loan terms. Regularly monitoring and maintaining your score is key to negotiating favourable rates.

5. How can I repay my home loan faster and save on interest?

To repay your home loan faster, increase your EMI annually, make regular or lump-sum prepayments, and consider paying one extra EMI each year. Choosing a shorter tenure and refinancing at a lower rate also accelerates repayment and significantly reduces the total interest burden.

Return to Goal