Hi Ramalingam Sir,
First of all thank you for your replies for my previous queries. I am 41 yrs old private employee earning 1.5 lakhs per month. I and my brother combined constructed a house 5 years back by taking joint loan of 59lakhs with 9.1 interest (floating)for 21 years. We both are paying 50k per month. 25k each. Till now not much principal got reduced. We have opened one joint account and adding some amount of 4k (each 2k) every month and thinking to pay as principal amount at end of year. I don't feel it is good idea but we are not getting any idea. Could you please give us suggestion on how to pay this loan as much as early.? Thanks in advance
Ans: You have done a great thing by co-owning and sharing a loan. It takes planning and commitment. Paying a long-term loan early needs careful steps. A focused strategy will help you save interest and reduce stress.
Below is a complete 360-degree solution. This will help you close the loan faster and stay financially safe.
1. Understanding Your Current Loan Structure
You and your brother took a joint home loan of Rs. 59 lakhs.
Interest is 9.1% (floating). That’s quite high.
You both are paying Rs. 25,000 each, totalling Rs. 50,000 monthly.
The loan tenure is 21 years.
After 5 years, principal reduction is still very low.
This is because in early years, interest eats most of EMI.
Your method of saving Rs. 4,000 monthly to prepay annually is good in spirit.
But in action, it may not create much impact.
Let us explore a better plan.
2. Step-by-Step Review of the Issue
Your interest rate is 9.1%, which is high today.
Loan is 5 years old, so around 16 years are left.
You have already paid around Rs. 30 lakhs in EMIs.
Still, the loan principal hasn’t reduced much.
This means you are in the heavy-interest zone.
Time is the biggest cost here.
Faster principal reduction will save a lot of interest.
You can’t just depend on small yearly prepayment.
3. First Action – Review and Refinance the Loan
First, check your current loan outstanding.
Check your repayment schedule from bank or netbanking.
See how much of EMI is going to interest.
Now consider transferring the loan to a new bank.
Many banks now offer home loans around 8.3% to 8.6%.
A 0.5% difference may look small.
But it can save lakhs over remaining years.
You and your brother must compare 3–4 lenders.
If new bank is ready, shift to a lower rate.
No harm in reducing tenure while transferring.
Even 2–3 years cut in tenure saves a lot.
4. Revisit EMI and Tenure
You are paying Rs. 25,000 monthly.
This may be within your budget.
If yes, try to increase EMI by Rs. 2,000–Rs. 3,000 per head.
Higher EMI cuts principal faster.
Lower tenure means lesser interest burden.
Use the new EMI wisely by combining refinance and increased payment.
Avoid extending the loan tenure again.
If possible, reduce tenure instead of EMI.
5. Rethink the Annual Rs. 4,000 Saving Approach
Saving Rs. 4,000 monthly in joint account is okay.
But idle money doesn’t grow.
Interest in bank account is very low.
Instead, invest this Rs. 4,000 in a short-term debt mutual fund.
Use regular plan through MFD with CFP credential.
Direct plans may look cheaper but lack support and rebalancing.
With regular plan, you get better advice and ongoing help.
At year-end, redeem and prepay lump sum against principal.
Debt funds offer better growth than savings account.
Tax efficiency is also better if used wisely.
6. Create an Emergency Buffer Separately
Prepaying is good, but emergency safety is more important.
Before aggressive prepayment, build a safety fund.
Keep at least 3–6 months of EMI and expenses as emergency fund.
Use liquid mutual funds for this.
This protects your EMI even if job or cashflow is hit.
Avoid using your loan prepayment savings for emergencies.
Keep the two goals separate.
7. Avoid Prepayment from Retirement Corpus
Never touch EPF, PPF or long-term savings for loan prepayment.
That may create future income problems.
Let those assets grow for your retirement years.
Housing loan can be managed with better cashflow planning.
Prioritise steady investments over aggressive prepayment from retirement corpus.
8. Align Investments and Loan Closure Together
If you want to clear the loan faster, balance it with investment goals.
You can run SIPs and prepayment both side by side.
Divide monthly surplus into three:
Some for SIPs in active mutual funds.
Some for yearly lump sum prepayment.
Some for emergencies.
This keeps wealth creation, risk cover, and debt reduction in sync.
Don't stop SIPs completely just to prepay faster.
Mutual funds give long-term growth and liquidity.
9. Tax Benefit Assessment
Home loan offers tax deductions on interest and principal.
You both are eligible for 80C (principal) and 24(b) (interest) benefits.
Check if you are using full benefit.
But don’t keep loan just for tax saving.
Interest outgo is more than tax saved in most cases.
It is better to close loan early and then invest that EMI.
You get better peace of mind and cashflow freedom.
10. Use Bonuses and Extra Income Smartly
You may receive bonus, incentives, or yearly hikes.
Use a fixed portion of that money to prepay loan.
For example, 40% of bonus goes to loan, 40% to investments.
Remaining 20% for personal spending.
This method helps in faster loan closure.
But keeps your future goals also on track.
11. Communicate and Review as a Team
You and your brother are managing the loan together.
That’s a great responsibility and effort.
Keep monthly reviews and open communication.
Review the bank statement, interest paid, and outstanding.
Every prepayment reduces total interest burden.
Celebrate milestones like Rs. 5 lakh principal paid off.
It will keep both of you motivated and united.
12. Don’t Buy More Real Estate Now
Your existing home is already a big commitment.
Avoid investing in second property.
Real estate has poor liquidity and low regular returns.
Maintenance cost, property tax, and legal risk are high.
Don’t stretch finances with multiple loans.
Build wealth through financial assets instead.
13. Take a Certified Financial Planner’s Help Once a Year
Every year review your plan with a Certified Financial Planner.
Check how much principal is left.
Plan SIPs, investments, and prepayment in right proportion.
Review life and health insurance too.
A CFP helps you align your goals with numbers and strategies.
14. Insurance Protection Check
Ensure you and your brother both have term insurance.
This secures the loan liability.
If something happens to one person, the other isn’t burdened.
Term plan is low-cost and covers only risk.
Avoid policies that combine insurance and investments.
15. Track Your Progress Annually
Make a simple tracker in Excel or diary.
Note EMI paid, principal reduced, balance left.
Mark each prepayment.
It motivates and helps fine-tune future decisions.
Share the sheet with your brother too.
Finally
You both have made a good effort so far.
The first five years of a loan are toughest.
Now is the best time to take control.
Don’t let the high interest eat your future savings.
Use a mix of refinance, EMI increase, short-term fund, and lump sum payments.
Don’t compromise on long-term investments and insurance.
Keep your goals clear and emotions away from decisions.
Your loan can be closed 5–7 years early with these changes.
That will free up cash for future dreams and peace of mind.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by Sumit on Apr 21, 2025Hindi
