Loan: How to repay a 25-year home loan in 10 years? These smart prepayment tricks will save you lakhs of rupees..

Owning your own home is a great feeling, but when this comfort is coupled with the EMIs of a 25-year home loan, it gradually becomes a burden. Paying EMIs every month takes up a significant portion of your salary, and the interest is even higher. But did you know that the loan you're planning to carry until retirement can be paid off in just 10 years?

This doesn't require any magic; instead, you need financial discipline and smart prepayment strategies. Let's understand how you can save lakhs of rupees in interest by repaying your ₹50 lakh loan in less than half the time.

Loan Mathematics

If you've taken out a home loan, it's crucial to understand the loan and interest ratio first. In the initial years, a significant portion of the EMIs you pay go toward the bank's interest, not your principal. Let's assume you've taken out a ₹50 lakh loan at an 8.5% interest rate for 25 years. Your monthly installment will be approximately ₹40,300. In the first year, you'll pay approximately ₹4.83 lakh, but surprisingly, only ₹60,000 will be less than your principal. The remaining ₹4.23 lakh will be credited to your bank account as interest. Therefore, the best time to repay the loan quickly is during the first 5-7 years.

Extra EMIs will do the trick.

Paying extra EMIs is a simple way to repay your loan quickly. All you need to do is pay 13 installments instead of 12 over 12 months. Once a year, deposit an additional amount equal to your EMI (e.g., ₹40,000). This extra amount is deducted directly from your principal. Paying just one extra EMI a year reduces your 25-year loan term to approximately 20 years. You can use your Diwali bonus or increment for this.

Step-Up EMI
As your job ages, your salary increases by 7% to 10% annually. Start increasing your EMI proportionately. If you increase your EMI by just 7.5% each year, you'll benefit significantly. If you pay an EMI of ₹40,000 in the first year, ₹43,000 in the second year, and approximately ₹46,225 in the third year, this small increase will reduce your loan tenure from 25 years to around 12 years. This means the home will be completely yours in less than half the time.

Power Combo
If you truly want to be debt-free within 10 years, combine the two methods mentioned above. Pay an additional EMI every year while increasing your EMI by 7.5% to 10% annually. On a loan of ₹50 lakh, you'll end up paying approximately ₹71 lakh in interest alone over 25 years. But with this "power combo" strategy, you'll not only be debt-free in 10 years, but also save around ₹3.5 million to ₹4 million in interest. These savings can become a substantial fund for your retirement planning or your children's education.

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