Start now, and sail through your tenure like a pro!
A home loan is a big financial commitment that most people have to bear; and while the margin for error in the repayment of your loan amount is small, it need not be an uphill task either.
Other than just making sure that you have sufficient balance in your bank account to be able to pay your monthly EMI, you can also make things a lot easier for yourself by actually paying off your home loan before the end of your tenure (the time allotted to you to pay back your entire loan amount plus the interest). What’s more, most of these strategies don’t require you to have more money, or a budget higher than what you had intended.
So here are some smart tips on how to manage your home loans:
Pay a higher EMI
While this may seem counterintuitive, it is actually one of the best ways to ensure that you are able to pay off your loan amount earlier than your tenure. There are a couple of ways in which you can do this without increasing your financial burden.
Some banks offer a home loan scheme that is a combination of a regular term loan and a credit line facility. This means that by paying a slightly higher interest rate (which can mean a difference of Rs 2,000 to Rs 5,000 a month, depending on your loan amount and tenure), you can shave off a significant number of months, and even years, from your tenure.
The surplus EMI amount that you pay can come from a few sources -- an increment in your income, money that was going into an endowment insurance plan, or a post office recurring deposit (be sure to check the lock-in period and the amount of flexibility allowed for each of these).
Manage your funds
When dealing with multiple loans and investments, the objective has to be to maximise your cash flow. Compare all your loans with a list of your savings and investments. If you see that certain savings/investments are giving you lower returns than what you are paying as interest on your loan, it would be beneficial to close those investments and direct the funds towards paying off the EMI for your home loan.
Prepay your loan
Partial prepayment of your loan amount is the fastest way to lower your tenure and decrease your long-term liability. While this may seem like a tall order, you will find that are several sources from where you could source the money to be able to do this: one-time incomes like windfall gains on stocks and shares, property sold, bonus on your salary, gifts from relatives/friends, closing of deposit schemes, maturing of tax saving investments, and so on.
Generally banks allow a minimum prepayment amount Rs 10,000, and usually do not levy a charge for it.
Shift to a lender that charges lower interest rate
Banks change the interest rate applicable on home loans based on the interest rate reset period, and you may find that there is a trend in the rates going up or down for most banks at around the same time. Make use of the opportunity of rates going down, by switching to a home loan for which you have to pay a lower interest amount, effectively decreasing the tenure on it.
Do keep in mind that when you do a loan transfer, you will have to get your property verification and legal paperwork done afresh.
With some shrewd financial planning, and almost no additional expenditure, it is quite easy and uncomplicated to manage your home loan repayment.
Photograph: Kevin Fox/Wikimedia Commons
The author is co-founder Housing.com