Owning a house is a dream for everyone. However, 80-90% of people rely on a home loan when it comes to buying one. The burden of a home loan is often so high that most people pay more in interest than the principal amount. Many people make small mistakes after taking a home loan, which leads to higher payments. Here are 5 simple ways to help you save money while taking a home loan.
1. Choose a Shorter Loan Tenure
If you opt for a longer loan tenure, you’ll pay significantly more interest. On the other hand, a shorter tenure means paying less interest, although your EMI (Equated Monthly Installment) will be higher. For example, if you take a home loan of ₹50 lakh at a 9% interest rate for 15 years, you’ll pay ₹41 lakh in interest. However, for the same loan amount over 20 years, the interest increases to ₹58 lakh.
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2. Increase Your EMI as Your Income Grows
Your financial situation often improves over time, so increase your EMI as your income rises. For example, if you take a home loan of ₹50 lakh for 20 years and increase the EMI by 10% every year, you can close the loan in just 10 years instead of 20.
3. Secure a Good Term Insurance
Taking term insurance is crucial when you have a home loan. It protects your family financially in case of any unexpected event. The insurance payout can cover the outstanding loan amount, ensuring your family doesn’t lose the house if you are no longer there. Without insurance, the bank may seize the property to recover the loan.
4. Take a Joint Loan with Your Spouse
Consider taking a joint home loan with your spouse and registering the property in both names. This way, you both can claim tax benefits, effectively doubling the savings. Under Section 80C, both of you can claim ₹1.5 lahks on the principal amount (₹3 lahks in total), and under Section 24, you can each claim up to ₹2 lakh on the interest (₹4 lakh in total). This adds up to tax benefits of ₹7 lakh, depending on the loan amount.
5. Restructure Your Loan When Interest Rates Rise
When interest rates increase, banks often extend your loan tenure to keep your EMI manageable. However, this results in higher interest payments over time. Instead, request the bank to restructure your loan by increasing the EMI instead of extending the tenure. This will help you save money and close the loan faster.
These simple strategies can help you manage your home loan efficiently while saving a significant amount of money.