Should you consider paying off your home loan faster in your 40s or 50s?
This article gives you practical tips to pay off your home loan in case you are in your 40s and are concerned about potential income stability impacting your home loan.
Should you consider paying off your home loan faster in your 40s or 50s?
Posted on 04 Dec 2024
Author: Sayan Sircar
5 mins read
📢Join 3400+ readers on WhatsApp and get new post notifications!
This article gives you practical tips to pay off your home loan in case you are in your 40s and are concerned about potential income stability impacting your home loan.
📚 Topics covered:
- What are the options for paying off your home loan quickly in your 40s?
- How long can you realistically keep a home loan if you are in your 40s?
- How much extra should you pay over your current EMI to pay off the loan faster?
- How much time do you save if you decide to step up your home loan EMI?
What are the options for paying off your home loan quickly in your 40s?
Ideally, if you have a home loan, you should not prepay it at all.
Houses are the only asset that can be purchased with a loan and this concept of leverage does not apply to any asset. You can of course take a personal loan to invest in the stock market but that is not a good idea: Should you take a personal loan to invest in the stock market or mutual funds?.
We have shown before that investing in riskier assets like mutual funds to make potentially higher returns than the home loan interest savings is possible: How can you pay the least interest and get the most tax deduction on your home loan?
The only caveat here is income stability.
How long can you realistically keep a home loan if you are in your 40s?
As long you think your job will be there.
Now subtract 5 years from that.
This is when you need to pay off the home loan.
For many readers, that five-year figure will vary but it is best to be prepared: How to prepare today in case you are forced to retire in the next five years?
Of course, you are bound by both:
- investible surplus (monthly income minus expenses)
- what you can spare from mandatory goals like retirement
Of course, if you prepay the home loan, the saved EMI in the future can be used to invest for goals like college education since your monthly in-hand income is now effectively higher.
Once you know when to pay off the loan, there are two approaches to take on the prepayment:
- fixed amount every month which will be higher than the actual EMI
- a step-up EMI that will increase every year with salary hikes
We will explore both options below.
How much extra should you pay over your current EMI to pay off the loan faster?
Paying double (or 2.06 times to be exact) the EMI pays off a 15-year home loan in 5 years.
Here we have assumed that the loan interest rate is 8.8% which is applicable for loans above ₹1 crore. Lowering the interest rate to say 8.5% does not materially impact the numbers in the table below.
Read the above table as :
- to pay off a 15-year loan in 5 years, pay double the EMI (exact = 2.06 times the EMI)
- to pay off a 20-year loan in 10 years, pay 1.42 times the EMI
where the table gives the values of x for various combinations of home loan tenure left and the desired time to pay off the loan.
We have discussed this option in detail here: Pay Off Your Home Loan Faster: How Extra EMI Payments Save Time and Money
How much time do you save if you decide to step up your home loan EMI?
A step-up EMI, just like the step-up-SIP that amplifies your wealth, is a way to quickly pay off your home loan so that you save both interest and time.
In the example below, we will show the monthly EMIs of a normal loan for a ₹1 crore house (₹75 lakhs loan at 9% for 15 years, ₹25 lakhs down-payment) vs the same loan being paid off with a 10% step-up EMI like this:
| Year | Normal EMI | 10% Step-up EMI |
|---|---|---|
| This year | ₹77,537 | ₹77,537 |
| Next year | ₹77,537 | ₹85,290 |
| The year after that | ₹77,537 | ₹93,820 |
| … | and | so on |
To understand what the right option is to pay off your home loan:
This table shows the impact of a small step-up on the time it takes to pay off the loan.
In the table above, at a 9% loan interest rate:
- For a 10-year loan, if you step up your EMI by 10% a year, you save 31.90% of the time
- For a 20-year loan, if you step up your EMI by 5% a year, you save 39.23% of the time
We have discussed this option in detail here: How much time and interest do you save if you pay off your home loan using a step-up EMI?.
Related Articles
- How much time and interest do you save if you pay off your home loan using a step-up EMI?
- Pay Off Your Home Loan Faster: How Extra EMI Payments Save Time and Money
- How to manage a home loan if you are worried about job loss?
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.For resident Indians 🇮🇳:
For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:
Share on WhatsApp: To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:If you liked this article, please leave us a rating
The following button will take you to Trustpilot:Discover an article from the archives
Latest articles:
Topics you will like:
Next steps:
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourself.Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled Should you consider paying off your home loan faster in your 40s or 50s? first appeared on 04 Dec 2024 at https://arthgyaan.com
We are currently at 498 posts and growing fast. Search this site: Copyright © 2021-2024 Arthgyaan.com. All rights reserved.