Along with the joys of buying a dream home, comes the responsibility of repaying the home loan. Despite the recent reduction of interest rates on home loans by most banks and NBFCs, the burden of EMI can still be a large component of the monthly expenditure of an average Indian. However, if you smartly manage your finances and the monthly EMIs, you can repay the home loan faster and without much stress. Here few tips to consider:
1) Opt for higher value of down payment: While investing in a property, usually 85-90% can be met through a home loan, while the remaining will need to be managed by you. Ideally, if you can then opt for a higher down payment, so that the amount of home loan and subsequent EMIs will correspondingly decrease. Before doing so bear in mind the future expenses of a new home and also set aside money for personal expenses and emergencies.
2) Negotiate on the interest rate: Opt for a home loan with a bank where you have been a customer for a long period of time. Being a loyal customer, can get you some discount on the interest rate on the home loan, thus easing the EMI payments. The bank may also let go the processing fees when availing the loan, thereby saving you some money.
3) Opt for prolonged loan tenure: While the general tendency is that of opting for a lesser tenure with a view to finish loan quicker, opting for a longer tenure has its perks. If you are eligible for a longer tenure, of say 30 years, then the monthly EMI paid will be lesser in comparison to what will need to be paid when the loan tenure is 20 years. The loan will be spread out over a longer period of time, giving breathing space in the initial years and it will offer you time to build up your finances. As your financial situation improves, you can go for shortening the EMI tenure by making prepayment towards the loan.
4) Switch lender in case of steep interest rate on home loan: If the rate of interest paid by you is higher than the prevailing market rate, then look at porting your loan to another lender offering lower rate of interest. For those with a large EMI and a long home loan tenure remaining, this action makes sense. However, this has to be done post proper research on whether the new lender will be charging any hidden fees or a document processing fee for the move and if the present lender would levy a loan transfer charge. You need to study the difference in the interest rates, the outstanding loan, the tenure and factor in the transfer charges and decide if the switching makes monetary sense.
5) Strive for a loan prepayment: This helps a long way in reducing the EMI and closing the loan soon. A good bonus, raise or any money that has been inherited can be put to good use by prepayment of the loan either fully or partially. Any amount paid over your monthly EMI will go towards repayment of principal amount borrowed. Even smaller amounts will reduce your principal amount, thus reducing EMI and tenure. While previously prepayment of EMIs would attract certain penalty, most banks/HFCs / NBFCs allow prepayment without any charges.
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