If you are reading this, you probably already have some preliminary knowledge about home loans and its benefits. You might know that a home loan is an easy and convenient way to finance your dream home without draining your hard-earned savings. However, the process of taking a loan, starting from its research to actually receiving the loan amount in your bank account can be long and complicated. Any small mistake in the process can prove to be expensive in the long run.
We are here to guide you. So, here are 5 smart tips to manage home loan like a pro:
Manage your finances
Taking a home loan is a huge financial commitment that can alter your monthly finances and even your lifestyle choices. To ensure that you do not face any issue in paying your EMI, you need to manage your finances efficiently. Calculate your income from all sources including the income from savings like interest from Fixed Deposits or Savings Accounts. Prepare a monthly budget and stick to it. Reduce the unnecessary expenses and try to save as much as you can. Each penny saved will help you get rid of the loan burden faster. Review your investments. If they are not giving considerable returns, it’s better to liquidate them to increase your corpus for loan repayment. You might also have to cut down on certain luxurious expenses. The better you manage your finances, the less trouble you would face while repaying the home loan.
Pay higher down payment
The home loan amount is not sufficient for the entire cost of your home. You need to pay some amount as down payment from your pocket as well. This amount is usually equal to 20-30% of the total cost of the house, though it can vary basis your relationship with the lender and your creditworthiness. If you have savings, it is better to pay a higher down payment. This will reduce the total cost of the home loan and effectively EMI amount would come down. As a result, you could also be able to pay off the loan faster and reduce the burden on your pocket.
Pay higher EMI
EMI or Equated Monthly Instalments are the monthly payments that you make towards repayment of your home loan. To pay off the loan faster, pay high home loan EMIs. It is because a lower EMI would not only increase your loan tenure but would also increase the interest payout. On the other hand, with a high EMI, you can shorten the tenure and save on your interest cost too. You can pay a high EMI by cutting down your cost of living or reducing discretionary expenses, and diverting more funds towards EMI.
Use the facility of prepayment
Once you take a home loan, repaying it as soon as possible should be your top priority. With each day, your interest payout increases. Therefore, you should take all measures to pay it off at the earliest. If you have surplus funds or spare income, you should prepay your loan. It could be a bonus from your job, profits from investment, tax refunds, monetary gifts from family, etc. Usually banks do not charge any prepayment penalty and so you can easily prepay the loan to reduce your burden.
Balance transfer
If you find another lender who is offering the home loan at a lower rate of interest, you can opt for balance transfer and switch to the new loan to get a lower interest rate and better terms. However, you should also take in to account the cost of transfer and ensure that the processing fee or other charges are not significant. You should opt for a balance transfer only when the outstanding balance of the loan is high.
Once the loan is approved, it is important to manage it well so that it does not disturb your finances or cause unnecessary burden. While it means that you should consider your financial capability while determining the loan amount, it also means that you should try to pay it off at the earliest. These home loan tips would help you make an informed decision and manage your loan without any stress.
