Your awareness about the effect of the home loan tenure and EMI on your loan empowers you to take better decisions, explains Gaurav Mohta.
Home loans interest rates have stabilised in recent months after a rise during the last 12 to 15 months.
The worst of it seems to be over with the market expecting a rate drop in the future.
As we wait for better days and better rates, here are three tips to help you manage your home loan:
1. Choose your lender wisely
While this might seem trivial since most lenders in the market have very similar offerings, you need to look beyond the rate of interest (ROI) and focus on flexibility.
Look for a financial institution which is well known for its service.
A customer-centric company, even if it charges you a higher interest today, can be a big boon in the future.
So what should you look out for in your lender? Let me help you choose:
Are they flexible with the loan tenure?
Since interest rates are at a high, it would work to your advantage to take a loan for a long tenure now and shift to a shorter loan tenure when the rates temper down a little.
Since EMI is inversely proportional to loan tenure, you can pay a lesser EMI now and adjust your EMI later, ensuring that your EMI always stays within your comfort zone.
Are they flexible with the loan amount?
The smartest way to pay less interest is by borrowing a smaller amount.
If your lender is flexible with the loan amount, you can take a loan now to cater to your basic requirements and increase it later once the interest rates decrease.
Loan top-ups can come in handy in such cases.
Do they have a fully functioning mobile app?
A fully functioning mobile app is key to a smooth home loan experience.
Your awareness about the effect of the home loan tenure and EMI on your loan empowers you to take better decisions.
You can make necessary changes to your loan account and adjust your finances accordingly.
A well-maintained mobile app can be a big boon in such a case as it helps you be aware of all the necessary details and take certain actions without needing to call the lender every time.
Even the RBI has taken cognisance of this fact and mandated that lenders must be transparent with customers regarding all loan details and changes made henceforth.
A mobile app helps you always stay on top of your home loan.
2. Watch out for the festive season
The festive season is around the corner and it brings great deals!
As our parents have taught us, patience is the key to life and to home loans.
We are just a couple of weeks away from lenders and builders rolling out attractive and enticing promotional schemes which could help you make significant savings on your home loan repayment.
Hold your horses for a little bit and be on the lookout for festive deals.
3. A borrower's superpower -- pre-payment
The one medicine for all your interest worries is pre-payment.
Allow me to explain.
Every EMI that you pay is made of a principal component and interest component.
In the beginning of your home loan repayment, you are majorly paying off the interest component; the principal component forms a small portion of your EMI.
However, as you continue to pay more and more EMI, your total principal amount reduces and, accordingly, your EMIs consist of less of the interest component and more of the principal component.
Now, pre-payment is an amount you pay over and above your regular EMI.
Since you have already paid your interest due for the month, the prepaid amount is deducted directly from the total principal due.
This results in the levying of lesser amount of interest since the principal has decreased, thereby resulting in a lesser interest payment and your loan getting over earlier.
If you have stuck with me through all this time, you deserve an extra tip for your patience.
Some lenders allow you to give a standing instruction where a certain amount of money will be deducted from your bank account every month as pre-payment towards your loan.
This ensures that you make pre-payments every month and that complete your repayments earlier than the tenure, thus saving lakhs in interest payments.
With these points and a bonus tip by your side, you are now well equipped to set out and negotiate the best home loan deal for yourself.
- Have personal finance related questions? Ask rediffGURUS HERE.
Gaurav Mohta is Chief Marketing Officer, HomeFirst Finance Company
Disclaimer: This advisory is meant for information purposes only. This advisory and the information in it does not constitute distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article or an attempt to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.