Availing a home loan is a big financial responsibility, and it requires careful planning. Read on to know how you can plan your finances well for a smooth borrowing and repayment experience.
Applying for a home loan is an excellent way to get the required funds for purchasing your dream home. Today, with many lenders offering home loans at competitive interest rates, getting a loan is easier than ever before. But, once the loan is approved and the repayment period begins, many people struggle to manage their loans.
A home loan is a long-term financial product, and repayment requires your commitment for a longer period. Typically, the lenders in India provide home loans for a maximum of 30 years, which means you must repay the EMIs for 30 years. You can make a few smart financial decisions and manage the loan easily. The following tips will be useful:
Pay a Higher Down Payment
The lenders in India sanction a maximum of 80% of the property’s value as a home loan. The remaining 20% must be paid from your pocket upfront. This is known as a down payment. Experts recommend paying a higher down payment than the minimum required so that you can borrow a lesser amount, and consequently, the repayment will be easier.
Pay larger EMIs
The EMI is calculated based on the amount you borrow, the loan tenure, and the interest rate. You must pay this amount throughout the loan term. But, most lenders give you the flexibility to pay a higher EMI than the prescribed amount. This can help you pay off the loan faster than the usual tenure and save on the interest payments.
Suppose you are expecting any additional income like interest from investments or annual bonuses. In that case, you can use the amount towards repayment of the home loan rather than spending it on luxury items. Increasing the EMIs by Rs. 1000 per month can help you save a significant amount on interest payments in the long run.
Opt for partial prepayment
Apart from paying an additional EMI, you can also consider prepaying the loan partially with your surplus income. Prepayment means paying off a part of the loan dues before the end of actual tenure. If you have any fixed deposit maturing or due to receive your dividends, you can divert the funds towards partial prepayment of the home loan. This will not only help you pay off the loan faster but also help you to get complete ownership of the property sooner.
But, before you prepay the amount, make sure to check if the lender charges any prepayment fee and make a decision accordingly.
Consider balance transfer
If you find that other lenders in the market are offering home a lower interest rate than what you are repaying during the loan tenure, you can consider transferring your loan to a new lender. This facility is called a balance transfer of the loan. With a balance transfer, you can repay the remaining amount at a revised (lower) interest rate for the rest of the loan term.
But, be aware of the term and conditions before you initiate the transfer process. You must ask the new lender if you must pay a loan processing fee or if the existing lender has a penalty clause for transferring the loan. Make sure that the savings are more than the penalties.
Take advantage of your credit behaviour
If you have a good history of maintaining a high CIBIL score and have repaid your dues on time, you can use your credit behaviour to your advantage to negotiate the interest rate on home loans. Typically, the lenders consider the borrowers’ repayment history to determine the interest rate. Based on your good credit behaviour, the lender may give you a valuable discount on the interest rate.