Along with the pleasures of owning a dream house, the burden of repaying the home loan arrives. Despite most banks and NBFCs’ recent lower interest rates on home loans, the cost of EMI can still be a significant component of a typical Indian’s monthly spending. However, you can repay the home loan sooner and without any hassle, if you smartly handle your finances and the monthly EMIs.
People can also fill the home loan application for further details.
Few tips to remember are here:
Opt for a higher down payment value: Typically 90 % will be reached by a home loan when investing in a house, while the remainder would need to be handled by you. Ideally, if you can then opt for a higher down payment, it will decrease the amount of home loans and subsequent EMIs accordingly. Before doing so, take into account the potential costs of a new home and put aside cash for personal bills and emergencies as well.
Interest rate negotiation: Pick a home loan from a bank where you have been a client for an extended period. As a loyal client, you will get a discount on the home loan interest rate, thus easing the EMI payments. When making use of the loan, the bank can even let go of the processing fees, saving you some money.
Opt for an extended loan term: While the common trend is to opt for a lower tenure to complete the loan sooner, there are benefits to opting for a longer tenure. If you are entitled to a longer-term, i.e. 30 years, the annual EMI paid will be lower relative to what needs to be paid in 20 years. In the early years, the debt will be extended over a more extended time, providing breathing room and allowing you time to shore up your finances. You will shorten the EMI tenure by allowing prepayment for the loan as the financial condition improves.
In the case of a steep interest rate on a home loan, swap lenders: If the interest rate paid by you is higher than the prevailing market rate, then try moving the loan to another lender with a lower interest rate. This action makes sense for those with a hefty EMI and a long term with a home loan left. This must though be accomplished after proper analysis into whether the new lender will charge any hidden costs or a paper processing fee for the move and whether the existing lender will charge a loan conversion fee. You need to research the disparity in interest rates, the unpaid debt, the tenure, and the conversion fee aspect, and determine if it makes monetary sense to switch.
Strive for prepayment of a loan: This goes a fair way to reduce the EMI and close the loan shortly. A good bonus or any cash that has been inherited will be put to proper use either entirely or partly by prepayment of the loan. Any money charged by your monthly EMI will go towards repayment of the borrowed principal amount. Your principal balance would also be diminished by lesser quantities, thereby lowering EMI and tenure. Although a specific penalty would draw earlier prepayment of EMIs, most banks/HFCs/NBFCs make prepayment without any fees.
If possible, pay a higher EMI.
It is one of the easiest ways to make sure that when the home loan term expires, you can repay the loan balance. You will cut off a large number of months or years from your loan term by paying marginally higher EMIs (from ₹ 2,000 to ₹ 5,000, depending on the volume and tenure of the loan). To be able to raise the EMI number, the home loan buyer must spend his capital prudently to produce enough funds and boost his equity.
Manage the funds
The goal is to optimise cash flows when working with loans and savings. Compare your monthly contributions (outflow of funds) with your monthly gains on savings (inflow of funds). E.g., if you feel that some investments do not offer adequate returns or have become useless over time, it would be advantageous to close them and pool the funds on your home loan against the EMIs. And by investing in options that offer 12 to 15 % returns, try to save some cash. This will provide you with more money than the 10.5-11.5 % on the debt that you will pay in interest. To prepay your loan, you can use the differential amount.
It is financial prudence to prepay your home loan faster. Use the point mentioned above and lessen up your burden and own your home. Not only will you have peace of mind, but you will also be able to save a lot of money by avoiding balance interest. Remember to choose a lender that has nil or close to a prepayment penalty.