While living in an owned house is everyone’s dream, having to pay the home loan EMIs for long years is something that everyone dreads. Generally the home loan tenor that most borrowers opt for is for 20 years. Come to think of it, 20 years or 240 months is a very long time. A new born child will grow into a full adult and be ready to take up a job in this time frame that one would take to repay the loan.
Today we share with you the ways in which you would be able to manage the home loan EMIs smartly. These steps have the potential to both reduce the loan term and also help in saving money.
Pay a higher EMI in initial years
In case you are not aware, please be informed that the major portion of the monthly EMI in initial years gets set off towards the interest. Only a small portion goes towards payment of the principal amount. What is means is that if you have taken a loan for 20 years, even after servicing EMIs for 5 years (60 months) your principal amount would have had negligible reduction. What you can do is to increase the EMI by whatever amount you feel comfortable with. Even a small increase of 1 or 2 thousand rupees will drastically impact the loan outstanding. This is for the reason that complete amount of additional EMI will get set off against the principal only.
Keep an eye on interest regime
The repo rates keep getting revised by the Reserve Bank of India and this in turn impacts the interest rate charged by the housing finance companies. While the HFCs are prompt in an upward revision of home loan interest rate, they generally do not automatically reduce the rate. So if you are tracking this regularly, you can ask for reduction with immediate effect. Given that the loan amount is large, even a small drop will make a huge impact on the principal amount.
Some banks may ask for a small fee to implement that change. It may be worthwhile to pay that fee and get that reduced rate implemented.
This is another way that can go a long way and help in managing the EMIs smartly. And the best part is that this can be availed at any point of time. If you have paid 12 months EMI, maybe this option can help in reducing the EMI outflow. You can approach any other housing finance company and negotiate with them better rate and terms of loan. It is anyone’s guess as to how the reduced rate of interest is going to help in bringing down the cost of funds.
However, one thing that you must bear in mind is the processing fee and or any other charge that may get levied by the existing or future lender. So please be very clear on the charges before initiating the balance transfer.
There are times when there is a windfall gain. Getting a bonus or an increase in salary or a good margin in a trade that you undertook is definitely a possibility. Once this happens, one should look at prepaying a certain part of the principal amount is a good idea. Partial pre-payments have a gross impact on the outstanding. Now you can either reduce the monthly EMI while keeping the original term of payment or you can opt for reduced term of loan while keeping the amount of EMI at same level where it was before part payment.
Ensure adequate balance in account
One thing that you need to do is to ensure that the account is adequately funded at least 3 days prior to the EMI date. There are severe penalties on delayed payments. Not only will it impact the finance but a default on home loan has most severe impact on the credit profile. Multiple delayed payments will surely lead to you looking out for a loan for low CIBIL score.
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