Buying a home is every person's dream and getting a home loan is probably the biggest financial commitment most people make to live the dream. Home loan premiums vary depending on the amount availed from the bank, and also on the loan tenure. In addition, it's not always easy to manage the home loan EMIs with the unexpected personal expenses that may arise. So, it is extremely important to find smart ways to manage this liability which we call housing loan. Here are a few tips to help you manage your EMIs and breeze through the repayment process in a cost-effective manner:
- Pay higher EMIs: Increasing the amount you pay with each Equated Monthly Instalment (EMI) ensures completion of the loan period sooner than the time proposed. A higher EMI not only reduces the loan tenure but also cuts down your interest payments. This can be done by simply cutting down on your secondary expenses and diverting it into the EMI. Remember, affordability is the key. Picking up a high EMI can end up as a financial burden. Even a mere addition of 5% on a monthly basis can change your overall home loan tenure by a huge margin.
- Go for a lower interest rate: You can also choose to transfer your remaining loan amount to another lender offering a lower rate of interest. Most banks reduce their interest rates owing to different interest reset periods. Comparing and analysing various schemes thoroughly can help you look out for the banks that prove to be profitable for you. However, make sure you don't transfer your home loan balance too many times as you will have to go through the entire legal paperwork each time you switch to another bank.
- Maintain a good credit score: A good credit score always attracts a better home loan and favourable EMI payments. The CIBIL score is one of the main factors on which the bank decides whether to process the home loan application or not. A better CIBIL score helps the bank to process a home loan quicker. You can obtain your credit report along with the credit score from Credit Information Bureau Ltd. (CIBIL) for a nominal fee and think of necessary steps to improve your credit score.
- Use an EMI calculator: EMI calculators are simple tools that help you understand the amount of home loan you can sustain with your present income efficiently. Using these tools, one can get enough knowledge on their monthly EMI payments, interest rate and cash down payments under various home loan options. This will also help you to choose the most feasible home loan scheme as EMI calculators are specific to the loan that a person wants the exact information for.
- Make partial prepayments: Prepayment is the settlement of an EMI before its official due date. This can either be made for the entire home loan balance or for an upcoming EMI that is paid in advance for which the borrower is contractually obliged to pay. Most banks allow partial prepayment without applying any charges up to a certain limit. Partial prepayment lowers the remaining principal amount, which in turn reduces your EMIs or the home loan period. Utilising your one-time payments like incentive and bonuses for prepayments will enable you to bring in more benefits in the long run.
- Never delay or miss your EMI payments: Financial discipline is the key, as even a single delayed payment can pull out extra money from your budget and bring down your CIBIL score. Make sure that your payments don't remain outstanding for over 90 days or the banks will categorise your home loan account as Special Mention Account (SMA). It is crucial that you pay all your EMIs on time and assess your appetite for new credit cards and other loans until the completion of your present home loan tenure. To avoid such things, it is always wise to make sure you have a few month's expenses kept aside as an emergency buffer.
- Manage your funds smartly: To manage EMIs along with other personal expenses, one must find ways to maximise his/her cash inflows. Compare your monthly payments with monthly returns. Certain investments that are not giving enough returns compared to the amount being paid as an interest on your housing loan can be closed or diverted towards your EMI payments. Not only will this give you a higher percentage of income that you'll be paying as an interest, you can also utilise the differential amount for prepayments.
A borrower's top priority must be to reduce his/her liabilities as soon as possible. The joy of owning a home can only be experienced after you have paid your home loan. Though it requires planning and discipline, managing your home loan EMIs efficiently will bring you the ownership papers of a debt-free home.