Deciding to get a loan to finance your dream home is a crucial financial step. Thus, it is necessary to prepare for any challenges that may arise while repaying the loan. So here are some tips to help you manage your home loan.
Make partial pre-payments
When you are paying off a loan, the EMI becomes a priority among other expenses. To avoid shelling out a chunk of your monthly income for paying EMIs and interest, consider paying off a large instalment before your tenure ends.
If you get a salary hike or a monetary profit, invest that money towards a pre-payment. Since pre-payment towards the loan goes directly towards the principal amount, you can considerably save on interest and bring down your outstanding amount. However, check with your lender and learn about their pre-payment options and additional costs applicable, if any.
Increase your EMI
The EMI amounts on your housing loan include both the principal amount and the interest charged. Short loan tenure and high EMI amount can reduce total interest outgo in the long run.
For example, consider a loan amount of Rs. 5,00,000 for a tenure of 10 years at a 9% home loan interest rate.
With an EMI of Rs. 6,334 you can repay the loan in 10 years, with the total interest amounting to Rs. 2,60,055. By increasing the EMI amount to Rs. 7,325, you can replay the same loan in 8 years, and the total interest outgo is Rs. 2,03,210.
Thus, by increasing the EMI by roughly Rs. 1,000 a month, you can save money by avoiding an additional charge of Rs. 56,845 in the long term.
To estimate the highest EMI amount you can pay within your budget, use a home loan EMI calculator. Enter your loan amount, tenure, and rate of interest. The tool will calculate the EMI and total payable interest for you.
Switch to another lender
While repaying the loan, you may discover that your expenses are much higher than you can manage. In such cases, you can transfer your loan to another lender. You may choose to change lenders for lower interest rates, better customer services, improved features, flexible payment schemes, and fewer additional charges.
To start, research and compare the services and interest rates offered by different lenders. Then, check their home loan eligibility criteria and any extra charges, such as a loan establishment fee, regular administrative charges, and the mortgage insurance for the new lender.
Before applying for a home loan balance transfer, ensure that your documents are in order. These include proof of earning, statements of the existing loan, tax returns, and any other documents requested by your new lender.
Using a home loan EMI calculator, compare between various loan offers. Since the calculator presents the total repayment cost of each loan, you can choose a suitable deal.
The bottom line
The process of repaying a loan can be tedious if done without proper financial planning. Follow these tips to manage this long-term EMI repayment commitment like a pro and comfortably repay the loan.