Owning a house is significant goal, but dealing with mortgage debt can be burdensome

I have been employed by an organization for the past decade, and my current annual compensation stands at approximately 24 LPA. In 2020, I tied the knot, and fortunately, my spouse also holds a position at an IT firm, earning around 16 LPA. Throughout my career, I have prioritized frugality and a saving-oriented mindset.

My journey into mutual fund investments began in 2016-17, gradually transitioning into a more aggressive investment approach. More than half of my earnings were allocated towards investments, with a further decision to utilize my wife's earnings for mutual fund investments post-marriage. Capitalising on the market rally of 2024, I successfully exited the market in September prior to a significant correction.

Recently, I made a substantial decision to acquire a 2-BHK property in Mumbai worth approximately Rs 2.3 crores, resulting in a loan of Rs 1.3 crore with a repayment duration of 30 years. I am seeking guidance on strategies to expedite the repayment of this loan within a 10-year timeframe. Any suggestions or recommendations would be greatly appreciated.

Advice by Akhil Rathi, Senior Vice President, Financial Concierge at 1 Finance

For numerous individuals, obtaining a residence marks a momentous occasion. However, the burden of mortgage debt can pose a long-term financial challenge for many. In recent times, home loan recipients have faced a considerable rise in their monthly payments, primarily due to the successive increases in interest rates on home loans issued by financial institutions starting in May 2022.

Owning a home in a city like Mumbai goes far beyond numbers—it’s a deeply emotional and aspirational milestone. While the rent vs. buy debate often tilts in favor of renting from a purely financial standpoint, the intangible value of peace of mind, long-term security, and emotional satisfaction that comes with owning your own space is unmatched. For many, real estate is not just an asset class — it’s a symbol of stability, and in a high-demand city like Mumbai, it holds even greater significance.

While addressing this spike in interest rates may appear daunting, there are effective strategies that can be employed to minimize your overall interest costs and expedite the repayment of your home loan. 

From a financial planning perspective, repaying your home loan efficiently can result in substantial interest savings over the long term. If your cash flow permits, it is advisable to reduce the tenure of your loan rather than just continuing with a longer 30-year schedule. Most likely, you are now opting for the new tax regime, which makes the tax benefits like 80C and 24B on housing loan interest irrelevant. In such a scenario, increasing your EMI and reducing the tenure from 30 years (EMI – Rs 99,959) to 15 years (EMI – Rs 1,28,000) or to 10 years (EMI – Rs 1,61,000), for instance, can accelerate loan closure and significantly lower the total interest outgo from Rs 2.3 crore to Rs 63 lakhs. 

Additionally, any bonus or lump sum inflows can be channelled toward prepayments to further ease the debt burden. (For EMI, interest rate is calculated at 8.5%, and interest outgo is calculated for 30-year and 10-year tenures.)

Although long-term equity investments can offer annualized returns in the range of 11% to 13%, home loan rates currently stand between 8% to 9% for borrowers with good credit scores. Theoretically, the equity markets may outperform loan interest over time, but not without risk and volatility. Therefore, repaying debt brings a unique psychological benefit and peace of mind that many investors value more than chasing marginally higher returns. It’s not always about what the numbers say—it’s about what helps you sleep better at night.

Going forward, it’s important to align your investment strategy with specific milestones rather than taking a blanket aggressive or conservative approach. Define your key financial goals—like children’s education, retirement, or early loan closure—and map your investments accordingly. While your timely exit from the markets in September 2024 was tactically smart, be mindful that markets often deliver sharp rallies. Ideally, align partial or full exits with milestone timelines to avoid missing out on potential upside. Staying invested with purpose and flexibility is key to holistic financial growth.