Power of Decelerating

How I am closing a home loan, with a simple trick? At the beginning of 2018, I had close to 36L home loan left on my flat. By 3rd quarter of 2023, I am closing the home loan entirely with some simple tricks. I just wish, I knew this “power of decelerating” much earlier. Thanks to my dear friend Partha who taught me this.

The trick is of course pre-payment, which everyone knows. But how do we prepay, how do we create a systematic “prepayment methodology”? The trick as with any financial well being requires is just – “Discipline” and “Patience”. Be disciplined to keep paying and have patience to see the results. Let us call it the “POWER OF DECELERATING” (as in the antonym of Power of compounding)

So how did I go about doing this?

1. Every quarter (or you fix this time period), I paid one EMI extra. I mean, every fourth month, I prepaid 1 month of EMI.
2. I chose the option of reduction in Tenor and not reduction of EMI amount for the prepayment.
3. The initial prepayments feel more rewarding, since the overall impact is far higher, one EMI prepayment might end up reducing couple of months EMI in the long term. But slowly the positive effect will diminish, BUT BE PATIENT.
4. I kept doing that for 5 years. Any bonus received, extra money received, all went into prepaying the loan. But one EMI extra every quarter was always a MUST.

So why did this deceleration happen? While power of compounding is true for patience with investments, which compound over time; power of deceleration is true for patience with prepayment of loans. You keep prepaying the principal, the interests are reducing at a faster rate. Which in turn leads to faster closure of the loan.

Lo and behold , I am closing this loan by this year, which otherwise would have taken me 10 years in total. And needless to say, I am always thankful to Partha who created that discipline in me.