If you are going for a home loan, you are probably making your biggest financial commitment yet. Home loan is a smart way of converting your dream of buying a home into reality, without much digging into your savings. But when it comes to paying the home loan equal monthly instalments (EMIs), it’s not always easy to handle the unanticipated overheads.
MakaanIQ brings some home loan tips to help you breeze through the repayment process.
Pay a higher EMI if you can
It is one of the best ways to ensure that you are able to repay your loan amount before the home loan tenure ends. By paying slightly higher EMIs (from Rs 2,000 to Rs 5,000, depending on the amount and tenure of the loan), you can shave off a significant number of months or years from your loan period. The home loan buyer must invest his money prudently to generate ample funds and improve his equity, to be able to increase the EMI amount.
Manage your funds
The objective while dealing with loans and investments is to maximise cash flows. Compare your monthly payments (outflow of funds) with monthly returns (inflow of funds) on investments. For instance, if you find that certain investments are not giving enough returns or have turned futile over time, it will be beneficial to close those and pool in the funds towards the EMIs on your home loan. Try to save some money by investing in options that give returns of 12 to 15 per cent. This will get you more income than the 10.5-11.5 per cent that you will be paying as interest on your loan. You could use the differential amount to pre-pay your loan.
Try partial pre-payment
The longer you take to pre-pay the loan amount, the more loan interest will be charged. Partial pre-payment is a speedy way to lower your loan tenure and decrease the loan obligation. There are many benefits of partial pre-payment. For one, most banks do not charge any fee for the facility, and the pre-payment amount can be as low as Rs 10,000. A burly bonus, big gains on stocks and shares, income from property sold, any tax-saving investments or fixed deposits that are maturing, gifts from parents or family, rental income and many more such one-time incomes can be used for partial pre-payment.
Move to a bank that charges lower interest rate
The lenders lower their lending rates at different time intervals due to diversified interest rate reset periods. You can save on the home loan interest rate by choosing the banks that have lower interest rates. This can be achieved through ‘Balance Transfer Schemes’ of banks.
Under balance transfer, the entire/major unpaid principal of home loan amount is transferred to another bank for a lower rate of interest. But you should make sure that you don’t make the switch very often or for minor interest rate differential, since each time you shift to a different bank, you have to undergo the loan appraisal and underwriting processes, besides technical and legal paperwork, all over again. The lenders also charge a nominal fee — about one per cent of the outstanding loan usually — for this facility. Trail the home loan market with a vigilant eye because the loan approver or banks offer lucrative schemes, especially around the festival time.
Use mortgage calculator
Mortgage calculators can help understand how much home loan you can sustain. These are simple and convenient tools and are easy to operate. You can get knowledge of monthly mortgage payments, cash down payments and interest rate under different home loan storylines. These calculators will help you determine which home loan scheme/product is the best for you, so that you can financially handle it. It also helps you to estimate the amount that you need to save for the expenses and investments other than monthly loan payments, such as daily expenses.
Do not delay or miss your monthly payments
Skipping your monthly instalments will not only pull out the surplus cash from your fixed budget, but also affect your credit score. Ensure that your loan is never tagged as the Special Mentioned Account (SMA). Banks categorise accounts as SMAs when the liability/payment remains outstanding for 30-90 days after the due payment date. It is crucial for you to assess your appetite for loans and not take new one till you have repaid the older ones