Why You Should Kill Your Loan Early
Compound interest is great when you earn it, but it's a nightmare when you pay it. On a typical 20-year home loan, you often end up paying double the loan amount just in interest.
Prepayment attacks the Principal directly. When you reduce the principal, the interest charged on it drops immediately, creating a snowball effect of savings.
The Power of Small Payments
You don't need a lottery win to be debt-free. Even paying an extra 5% or 10% of your EMI every month can shave years off your loan tenure.
- Example: On a $500k loan at 7% for 30 years, paying just $100 extra per month saves over $30,000 in interest and finishes the loan 3 years early.
Common Questions
Is there a penalty for prepayment?
It depends on your bank and loan type. Floating rate home loans usually have zero penalty. Fixed rate loans or personal loans might charge 1-2%. Check your loan agreement.
Should I reduce Tenure or EMI?
Always reduce Tenure. Reducing the EMI lowers your monthly burden but keeps you in debt longer, meaning you pay more interest in the long run. Reducing tenure saves you money.