Obtaining a home loan has become simpler lately, with various new-age housing financiers entering the institutional lending space. However, the latter part, i.e., managing repayments properly, is still an equally essential and attention-worthy undertaking. Failing to pay house loan EMI can be risky as it can lead to penalties and negatively impact your credit score.
Moreover, getting a home loan is a long-term commitment and a major financial decision for borrowers. Hence, one needs to carefully chalk out and manage their home loan EMIs to avoid a financial burden. Following are the tips that will allow borrowers to manage their home loans efficiently:
Tip 1: Increase EMI amount
If individuals receive a hike in their salary, they should try to increase their EMI amount accordingly. Increasing home loan EMI amount every year would significantly reduce the loan tenor. Individuals would be paying more than the EMI amount, which would further help minimise the total outstanding amount.
The extra amount that one repays over and above the fixed EMI will lower the principal amount and accordingly reduce the interest outgo. Therefore, it is suggested to make substantial payments during the initial period of the loan when the outstanding principal amount is high.
To that end, one can use a home EMI calculator to check the amortisation schedule. This will further help borrowers in making an informed decision about repaying a higher EMI.
Tip 2: Pay extra EMI every year
A borrower may want to pay an extra EMI every year to manage the repayment burden. There are generally no prepayment charges for floating rate term loans. By paying an extra home loan EMI every year, one can cut down the overall outstanding principal amount. That, in turn, reduces the payable interest since both are directly proportional.
Tip 3: Time your repayment
Paying EMIs on time improves one’s creditworthiness. Moreover, failing to pay an EMI attracts strict penalties from financial institutions and negatively affects the credit score. One can schedule their EMI close to the salary date so that adequate funds are credited in the account, which further reduces the chances of default due to insufficient funds.
Tip 4: Refinancing loan amount
It is one of the most beneficial options that borrowers can avail if they find that their existing lender is levying higher charges than other financial lenders. Therein, at first, one can negotiate with their lenders to cut down interest rates. In case your lender is not ready to change the interest rate, it’s ideal to switch to a financier charging lower rates to minimise house loan EMI. But one should be well aware of the documentation, charges levied by the institution, refinancing fees, etc., before a home loan balance transfer.
Tip 5: Calculate monthly spending and overall funds
Borrowers can list down their monthly spending and other unavoidable miscellaneous expenses before apply for home loan. This will provide borrowers with a fair idea about the total monthly savings or remaining cash after all expenses. Thereafter, borrowers can use an EMI calculator to determine the EMI they can bear without spreading their savings too thin.
Moreover, if you have invested in a savings plan with different financial institutions, you should calculate your returns from those. If those returns are less than your total interest, you can choose to transfer your funds to pay EMIs. It is always wise to close all your savings till the loan is repaid.
Some reputed housing finance companies also offer pre-approved offers to avoid the hassle behind loan applications. These offers allow borrowers to enjoy certain benefits on a home loan, loan against property etc. One can enter their name and phone number to check their pre-approved offer.
Thus, using a house loan calculator, switching lenders, and prepayment, among others, are the essential means to be managing EMIs effectively.