When you apply for a home loan, repaying the home loan as early as possible must be your priority. Read on to know the importance of repaying higher EMI to close the loan account early.
Repaying the home loan on time is one of the best ways to boost your creditworthiness. To ensure that the borrowers repay the EMI on time, most lenders in India schedule the due date closer to the salary date. This ensures that you have sufficient funds in the account and minimises the chances of default.
This was about repaying the EMI on time, but are you aware of the benefits of repaying a higher EMI? Let’s find out:
- Savings on the interest payment
One of the most significant benefits of paying a higher EMI is that you can save on the interest cost. The EMI has a direct impact on the interest rate of the home loan. So, when you pay higher EMI, the lower will be the total interest cost.
You can use the home loan EMI calculator India online to get a clear idea about your total loan cost, the total savings, and the approximate EMI that you can afford to repay every month.
- Repay the home loan faster
Generally, the home loan duration extends up to 20-30 years, which is a huge commitment. So, if you are not comfortable with such a long tenure, you can opt to pay a higher EMI. Higher EMI allows you to save on the overall interest payment and repay the loan faster.
Once you repay the loan, you can be worry-free and focus on accomplishing your other financial goals like building a retirement corpus, etc. When you pay a higher EMI, you may have to cut down on your expenses, but when you are debt-free, you realise it is worth it.
- Improves Credit Score
This is another significant benefit of paying a higher EMI. As you repay the loan consistently, over a period, your credit score will automatically improve. If you repay the loan before the actual duration, it will improve your creditworthiness, and you would be able to get a loan without any hassles in the future.
Additionally, when you repay a higher EMI, it reflects that you have higher cash liquidity, which is one of the most important traits that the lenders look for while approving loans.
- Better utilisation of money
You can increase your home loan EMI payment only if you have sufficient funds without compromising on your other essential needs. If you get any surplus funds through any source, be it through dividends payment from your investments or annual bonus, you can use the same to pay a higher EMI. This will help you get the benefits mentioned above, and you will make the right use of the funds.
- Tax Benefits
Most home loan borrowers worry about the tax benefits on the home loan. You can get tax benefits on the repayment of the principal amount under Section 80C to the tune of Rs. 1.5 lakhs per annum. Section 24 guarantees tax benefits on the interest repayment of the home loan. You can get a deduction up to two lakhs in a financial year.
In many cases, people fail to take maximum advantage of the tax benefits as they pay a lower EMI. By opting for a higher EMI, you can maximise the tax benefits.
Thus, there is more than one benefit of paying higher EMIs. Ensure that you plan your finances well and try to pay a higher EMI so that you can pay off the loan quickly and be debt-free.