Rahul had planned to avail a home loan to buy his dream house. However, he had heard stories of his friends wherein, housing loans disturbed their finances and pushed them into deep debts. This made him hesitant and anxious about his decision. Just when he was about to change his mind, he came across a newspaper article written by a financial expert. The article highlighted ways to manage his loan, and assured him that he is making the right decision.
Repaying your home loan can feel overwhelming. However, with a few tips, you can manage your loan efficiently and repay it without any hassles.
- Pay a large down payment
Paying more towards the down payment would help you reduce your EMI. Ideally, lenders require you to pay 20% of the property amount as a down payment. But you must strive to pay more as per your affordability. However, you must retain sufficient funds for property registration, interior decoration and other ancillary expenses.
- Prepay your home loan
Make partial part payments of your loan with lump-sum amounts to reduce the tenure and principal outstanding. You can use windfalls like bonuses, policy maturity amounts, monetary gifts for the repayment. Usually, lenders do not charge any fee for prepayment. However, you must check with your bank for the part payment fees and the number of prepayments you can make while availing the home loan.
- Opt for a balance transfer
If you find a lender offering a lower home loan interest rate, you can refinance your loan with the balance transfer facility. Through balance transfer, you can transfer your housing loan from the existing lender with another lender. It will help you save on interest outgo and reduce the monthly EMI.
- Go for higher EMI
Depending on your affordability, opt for a short tenure. Though long tenure means smaller EMI, you end up paying much more on interest. Instead, a short tenure would let you pay higher EMI and close the loan faster. You can decide the tenure and check your affordability with a home loan EMI calculator.
- Earn and save
Home loans span for decades, eating away a significant amount of your income. Therefore, even before availing a loan, start savings every month. You can start short-term investments like mutual funds and bank deposits. You can also have a separate fund for EMI payments so that you always have enough funds to make timely repayments. If needed, you can use the funds from low yielding investments. However, do not pull out funds from emergency funds or insurance policies. Similarly, only savings might not be enough. You would have to cut down on your unnecessary expenses and practise frugality. You might also need to expand your income and look for additional income to pay your EMIs.
While availing a housing loan, it is necessary to consider your affordability and repayment capacity. You must set a budget and accordingly avail a loan. Also, ensure that you have an emergency fund and medical insurance in place. Use an EMI calculator and apply for home loan today.