2 Proven Strategies To Clear Off Your PNB Home Loan Quickly
Home loans come to the rescue when people struggle to arrange the money needed to purchase or construct a house. However, since a home loan is a long-term commitment, it takes years to clear off the debt. Proper planning, coupled with a flexible lender, can go a long way in making you debt-free quickly.
You can also follow a few techniques to clear off the loan earlier.
This article discusses two proven tips to clear off your PNB home loan quickly. Knowing these steps before applying for PNB Housing loan is wise since you can plan appropriately.
But, before delving deeper, let’s understand the EMI in detail.
What Is EMI?
As a home loan borrower, your life will move around EMI or Equated Monthly Instalment. The EMI is composed of two elements – principal and interest. Principal refers to the amount you get after applying for a PNB Housing home loan.
In contrast, interest refers to the extra amount you pay to the lender for availing of the loan. Presently, home loan interest rates start from 6.99% and go up to 9.55%.
The interest rate of a home loan can be fixed or floating. While the interest amount of a fixed-rate loan remains static throughout the loan term, the interest rate of a floating-rate loan depends on the MCLR (Marginal Cost of Lending Rate). Unlike a fixed-rate loan, the interest rate of a floating-rate loan fluctuates depending on the MCLR.
Two Proven Strategies To Clear Off Your PNB Home Loan Quickly
Applying for a PNB Housing home loan can be a smooth experience when you know the best tips to clear off the loan quickly. Here are the two proven strategies to become debt-free sooner than you thought:
Strategy 1 – Make Regular Prepayments
Regular prepayments are the best technique to clear off your home loan earlier. When you apply for a PNB Housing home loan, the company informs you of the EMI (principal+interest) and the repayment tenor at the onset.
If your loan is on a fixed rate, the EMI and tenure remain unchanged throughout the loan term. However, if your loan is on a floating rate, the tenor will change depending on the increase or decrease in the MCLR. You may check the EMI with a home loan EMI calculator.
During the initial years of the home loan repayment tenor, the interest component comprises a major part of the loan EMI. Hence, if your EMI is INR 20,000, almost 15%-16% of this amount will be used to repay the interest.
In fact, the share of the principal component increases only after a few years, after you have cleared a considerable part of the interest, to be precise. So, if you want to clear off your PNB Housing home loan earlier, you must repay a part of the principal as often as possible.
Remember, every time you repay the principal, your net liability, including interest cost, reduces. And although lenders cannot reduce the EMI, they reduce the tenure to adjust for the decreased liability.
Hence, repaying a part of the principal during the initial years of the home loan repayment tenure can help you clear off your debt much earlier than the scheduled deadline.
Strategy 2 – Increase Your EMI After Every Year
This strategy might be a bit tricky, but it is highly effective.
Try increasing your EMI amount by INR 1,000 after every year. You may use the bonus received from your company, the maturity proceeds of your fixed deposit or mutual fund investments, or any windfall gain made from a business.
Alternatively, you may open a recurring deposit or mutual fund SIP (Systematic Investment Plan) account in the first year of the loan application and withdraw money from the account to support the increased EMI.
When you increase the EMI, your principal reduces, and so does the interest. While you may not see any visible difference in the EMI amount, the tenure will reduce substantially. Use a home loan calculator to calculate the net liability before increasing the EMI.
It is wise to note that PNB Housing does not levy any prepayment or part payment penalty on floating-rate home loans. So, you can apply for a PNB Housing home loan without worrying about making any extra payment for closing your floating-rate loan early. You may also club the two strategies discussed here to become debt-free earlier and enhance your credit score.