Getting a loan to finance your dream home is a crucial financial step. Thus, preparing for any challenges while repaying the loan is necessary. So here are some tips to help you manage your home loan.
Make partial pre-payments
When 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 installment 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
Your housing loan’s EMI amounts include the principal and interest charges. 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 term 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 repay 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.
Use a home loan EMI calculator to estimate the highest EMI amount you can pay within your budget. 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 change lenders for lower interest rates, better customer services, improved features, flexible payment schemes, and fewer additional charges.
To start, research and compare different lenders’ services and interest rates. Then, check their home loan eligibility criteria and any extra charges, such as a loan establishment fee, regular administrative costs, and mortgage insurance for the new lender. Ensure that your documents are in order before applying for a home loan balance transfer. These include proof of earnings, statements of the existing loan, tax returns, and any other documents requested by your new lender. Using a home loan EMI calculator, compare various loan offers. Since the calculator presents the total repayment cost of each loan, you can choose a suitable deal.
The bottom line
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.
