Thread by @OptionInversion

How I reduced from home loan (49Lacks) tenure from 30 years to less than 10 years.

Thread 🧵

1) Why went with home loan instead of waiting for few more years:
- Like every person’s dream of owning a home, we also decided to go for buying our first home.
- Since I didn’t have enough corpus, didn’t have any other choice to taking a home loan.

- I know few people would prefer to stay in rented house for xx years & invest same in equities and buy home at later stage of life.
- Priorities differ from people to people. Likewise, for me also owning first house was the priority & it gives different level of satisfaction.

- Finally after enough research, went ahead and brought first dream house :), back in 2017.

2) How much loan I took, tenure & EMI details:
- I took a home loan of 49L, and my salary was 16 LPA.
- Loan tenure was 29.5 years! Yes you heard it right :)
- Rate of interest was 8.5% & the EMI amount was Rs.37,900.

- I wasn’t happy with loan tenure & wanted to reduce it to less than 20 years, but how?

3) Study towards reducing loan tenure:
- When I calculated total loan repayment: 37500*12*29.5 = 1,32,75,000.
- It’s like my life time savings would end up repaying my home loan :(

- I started studying articles on how to reduce loan.
- Then I got to know that, banks will collect highest interest from the EMI amount during initial years. It’s like 90% of EMI will be interest & only 10% will go for principal payment.

- As years passes, interest component will reduce & principal amount will increase.
- For my loan, after 1st year: Interest: 4,14,942, Principal: 40,623
.
- These figures disturbed me a lot and I decided to do something to change this structure.

4) What steps I took to reduce tenure:
- Since I was left out with quite a bit after EMI & other expenses, I increased my EMI to Rs.45,000 from 37,900.
- That 1 movement, reduced my EMI tenure from 29.5 to 15 years!

- Initially my target was to reduce tenure to less than 20 years & it happened now with increasing my EMI by just 7,000 monthly :)
- Now my mind started to think to reduce it to less than 10 years, but how?

5) What helped me to reduce tenure to less than 10 years:
- Thankfully, I got 2.3L subsidy from Pradhan Mantri Avasa Yojana, as it was my first home, that helped me reduce my tenure to some extent.
- I changed my job and increased my EMI to Rs. 49,000.

- Whatever savings I have in 6 months, I paid lot of pre-payments during my first 3 years of loan. Bonus received as part of performance payment & job switch, I diverted as part of pre-payment.
- I reduced the interest rate by paying some nominal amount to Bank.

- I wanted to pre-pay until my yearly interest drops to 2Lacks, to claim income tax benefit.
- Now my yearly interest amount is less than 2Lacks, I stopped those pre-payments.

6) What actually I’m doing now with left out additional cash:

- Initially I was planning to finish my home loan in less than 7 or max 8 years. But after I started trading, realised that I can generate more money, rather paying pre-payment to save that 8.5% interest. :)

- I’m increasing my SIPs yearly & also adding additional cash to my emergency fund. Want to have emergency fund of at least 5L.
- Now remaining loan balance is around 24 Lacks, it would take another 5 years to finish.

- Let it take it’s time, meanwhile I will take another few years, before becoming full time trader with enough surplus & no debt.

So far, things are going as per my plan. Let’s c how it goes.

Key takeaways:

- Pay pre-payments in the initial years, preferably first 3 years, as most of our EMI goes as interest.
- Try to reduce interest rate by paying some marginal amount
- Increase EMI amount proportionally, that creates a magic.

Hope it helps somebody who has huge home loan. If it has good info, please like & re-tweet for maximum reach to help others. 🙏

#HomeLoan #TenureReduction #Investment #TipsToReduceHomeLoan