September – 2016
In September’16, I applied for a Home Loan and the same got approved and disbursed in less than a month. My EMI’s were due to start from October 2016. While planning for the property and further the loan, I decided against taking a 20 year loan in the first place (a usual choice for many) as that would have meant bigger burden for me and instead went for a 10 year loan. With 10 years saved right at the beginning.
Though it meant that I had to make a few compromises on the type of property I wanted, but on the other hand it also meant that I had to worry less.
So, I was a happy man 🙂
Rate of Interest – 9.35% per annum
Duration – 10 Years
Installments – 120 Installments
Rate Type – Variable
Loan End Date – September 2026
LESSON 1
I deliberately took a home loan for shorter duration (thereby taking a smaller home loan) as the longer the Home Loan tenure, the more is the amount of Interest that one needs to pay. If one increases the tenure of home loan from 10 Years to 20 Years, the interest payout gets increased by almost 100%!!!
Further, you end up paying around 33% more on overall Loan amount.
So, try taking loans for smaller duration. If that means that you need to compromise on size of your home like taking a 3BHK Instead of 4BHK, do reassess your requirements. Always look for overall cost of acquisition and not just the initial Price tag.
For a ₹50 Lakh for 3BHK, you may end up paying ₹1 Crore if a loan is taken for 20 years duration at 8% rate of Interest.
February – 2017
With just 4 months after taking the loan, the Interest rate got reduced from 9.35% to 8.65% from February’17. Taking advantages of this lowering of Interest rate and also checking on how much extra can I SAVE, I slightly bumped up my EMI amount by around 10%. This made my pending overall tenure to reduce from 114 months to 87 months.
So, 2.25 years got reduced from overall duration with just one small step.
Revised Loan attributes (on April’17)
Rate of Interest 8.65%
Installments Remaining – 87 Installments
Revised Loan End Date – June 2024
LESSON 2+3
Take advantage of lowering of Interest rates.
With 1% reduction in interest rates, your overall EMI can come down anywhere between 4.3% (for 10 a year loan) to 7.45% (for a 20 year loan) .
Instead of accepting the reduced EMI amount, keep your EMI at least equal to the previous amount which will help in reducing your overall loan tenure.
Also, revisit your home budget and check if you can reduce your wants and shuffle your investments to be able to save a bit more thereby lowering the overall interest spends and taking a leap towards becoming Debt Free early.
March – 2017
In my first 6 months of loan, I paid an Interest of around ₹1.8Lakh (30K per month). I did not like this. Paying of interest was akin to wastage of (my hard earned) money. I was continuously was on the lookout of decreasing this wasteful expenditure. Every time I paid the EMI, it pinched me. And pinched me Hard. Something needed to be done.
October – 2017
I did Balance Transfer and moved my loan to Standard Chartered from HDFC. Reason – a Unique product called Home Saver. This was apparently an Overdraft Loan account under which the interest was only charged on the amount withdrawn. If you had spare cash and deposited the same in this account, your overall interest outflow would come down.
Revised Loan attributes (on October’17)
Rate of Interest 8.60%
Duration Remaining – 10 Years
Installments Remaining – 120 Installments
Revised Loan End Date – October 2027
Yes, the loan was for 10 years and the loan end date got revised to October 2027 but that didn’t matter a lot as I had something else in the plan. You will soon find it out. 🙂
December – 2017
The first signs of benefit of having this account started coming. Within first 2 months, I had already made a saving of around ₹14,500 on my interest payments. I was starting to smile.
March – 2018
In 2018, the total Interest I paid against my loan was – ₹188713 + ₹4274 + ₹63238 = ₹256226
Total Interest paid so far against the loan stood at – ₹436486.
In just 18 months, I had paid so much of amount just as Interest. However, I was no longer moaning as my plan was working.
March – 2018 contd.
Owing to the unique nature of Home Saver account, I started moving all my extra savings and cash to this account. This meant, the more the money I kept in the account, the more I save on Interest being charged. Just a few months into the loan, my savings on Interest started showing. While I did pay interest, my savings also started and they were beautifully mentioned in the statement that was sent.
Since the day of my starting of Home Saver account , I had already saved ₹36647 until March End. Yayyyy!!! The plan had started to work.
More saving on interests meant more repayment of Principal.
e.g. if your EMI is of ₹30,000 of which let’s assume Principal is ₹10,000 and Interest is ₹20,000. Now if you save on Interest and your Interest payment is only ₹17,000 , then that means that the rest of amount is gets adjusted against your Principal payment and so your Principal because ₹13,000.
More repayment of Principal means lesser tenure of loan which means you become Debt free Early.
LESSON 4
Be on the continuous lookout of ways to increase income and decrease wasteful expenditures. Try to get the knowledge of new products from different people and experts. If you are having loans, call few banks every week to check what kind of products they offer and what are there ongoing interest rates.
Many a times, Banks or Financial Institutions also offer Balance Transfer with NIL or next to Nil fees. Why not take advantage of it? We can afford to spend 2 hours on FB, Twitter, Instagram every day but not 10 minutes calling and knowing about ways to increase our money!!!
March – 2019
Over the next one year, my determination to save more and more was on its peak. Not that I was penny pinching but every extra Rupee made its way to this account. I was determined to save the amount so as to make my account balance = Outstanding Loan Amount.
This meant that my overall Interest Outflow for the year came down to merely ₹86,104
During the year I saved a whopping ₹277,552 on interest payments and I was now saving 100% on my interest amounts.
Revised Loan attributes (on April’19)
Rate of Interest 9.50% (I don’t care)
Installments Remaining – (I don’t care)
Revised Loan End Date – (I don’t care)
Taking a Pause
At this juncture, I was at a point when all my future Interest amounts were now supposed to be Zero as I saved enough that my loan outstanding was equal to the amount I accumulated. At this point, I could have closed the account but instead I started using this account as my overdraft account and as an emergency cash account. If I needed any large sums of money, I would withdraw and the interest would get charged at only the amount availed. There was no new documentation required. I had money available at my disposal and this was slowly paying off my loan.
I no longer was worried about tenure, loan interest rates, outstanding amounts yada, yada, yada…..
My average utilization of the Loan amount stood at mere 2%.
August – 2019
In June’19, Standard Chartered made some changes in the way they charged interests on their accounts. While earlier, the interest was charged only on the different of amounts (Loan Amount – Amount deposited in account), they now introduced a slab wise structure for charging of interests.
This change in structure meant that even though there was amount in the account, one will still get charged with “some interest”.
Despite the change in the format of account, this still meant one could save as compared to traditional loan accounts. For people who are still on their way to accumulate amounts, this still works.
However, I was not comfortable to paying interest on the amounts that I already had deposited with them.
As you would know, I was losing out on (miserably low) savings account or even Fixed deposit returns, I decided to close the account by repaying the outstanding. Actually just had to ask them to settle the account.
And so, in August 2019, after less than 3 years of me taking a home loan, I repaid the same.
My overall savings on Interest in around 1.75 years of the account being with Standard Chartered was a whopping ₹3.71 Lakh.
LESSON 5
The feeling of being Debt free is unlike any other. The kind of sleep you get, the number of hair you save is akin to none other.
Looking back, what seemed impossible at one point in time (repaying a huge loan) – all I can say is that with determination and discipline, it is possible to achieve.
If I can do it, so can YOU.
Other Similar Products
Besides the Home Saver account from Standard Chartered, some of the other Financial institutions have similar products on offer.
e.g. Citibank has a loan product called HOME CREDIT and SBI Home loans also offer a product called SBI MAXGAIN.
SUMMARY
There were many a learnings that I had while managing this loan which helped me well in my future deb management cases as well. To summarise these were –
1. Start Small. Do no (over stretch) yourself.
2. Make Goals. Once we have goals, we work towards attaining them.
3. Don’t become complacent. When you have an opportunity, do not miss the bus.
4. Always aspire for perfection and improvisation. The best may be somewhere out there.
5. Determination and Discipline can take you to new heights. Be determined to always exceed your goals and in that way you will never miss them. Instill a discipline based approach in your life.