The most common way in which people afford to buy houses is by applying for home loans. These loans provide the financial cover required to make the property purchase as well as provide a long tenure of up to 20 years in which it can be repaid in monthly instalments.
Now, when it comes to the home loan EMI payments, most people prefer to go for the longest repayment tenure. This is so that they can pay off smaller monthly instalments, which leaves them with more spending power for other expenses. However, experts suggest that there are numerous advantages of doing the opposite and repaying the loan in a short tenure.
Wondering why? Here are 5 benefits of paying higher home loan EMIs:
- The loan is repaid faster
A home loan is a liability and a big one at that. In such cases, it is best to clear the loan out as soon as possible to become debt-free. Paying off higher monthly instalments is an effective way of clearing the loan. Lenders offer schemes such as ‘step-up’ loans where the EMIs increase as the tenure passes. You can opt for this method of payment to repay the loan faster.
- It is a much better use of bonuses/appraisals
Who does not wait for a well-deserved appraisal or a bonus? Now, instead of spending these extra funds on anything else, it is advisable to put them towards repaying your loan. Sure, it is very tempting to get an upgrade on your smartphone or get a home renovation done, but in the long run, you will be thanking yourself for putting the money to good use and clearing the loan faster.
- Repaying the EMIs sooner will improve your credit score
Many people are unaware of the fact that repaying a housing loan before the end of its tenure can significantly improve their credit scores. Repaying the loan sooner shows lenders that you have a stable income and are a trustworthy borrower. Therefore, when you apply for home loan, keep your credit score in mind and try to repay the loan before its tenure ends.
- You save money by reducing the interest component
The interest rate is one aspect that most borrowers focus a lot on. This is because even a slight difference in the home loan interest rate can make a significant difference to the EMIs. If you are looking to save money on the interest of the loan, it is better to clear the loan in a short repayment tenure. This is because by cutting down the number of EMIs, you are not letting the interest from getting accumulated with each instalment.
After going through this, you might want to take the shortest home loan tenure to avail these benefits. However, it is advisable to make use of a home loan calculator to learn about the monthly instalments of the loan. This will help in understanding whether you can comfortably pay off the housing loan in the preferred tenure.