With the ever-increasing property prices, obtaining a home loan is the most convenient option to finance a house purchase in India. With simple eligibility criteria in place, and lenders ready to provide the amount sought for, individuals may not find it challenging to secure a housing loan.
Nonetheless, borrowers should be more cautious about home loan EMI while opting for this loan. Typically, housing loans are long-term obligations and are a crucial financial decision. Notably, EMIs towards their repayment can claim a sizable amount from the monthly earnings for an extended period. Moreover, a default in EMI payments can accrue various penalties as well as impose damage on borrowers’ financial profile.
Hence, managing debt commitments can be tricky. Following are thus some tips to manage EMIs efficiently.
Pick the most affordable interest rate
The first recommendation would be to search for the lowest possible interest rate. Individuals should undergo extensive research and compare all the available loan options. In India, several lenders offer housing loans with varied benefits and features.
Borrowers must understand that home loan interest rate contributes significantly to the amount of total outstanding. So, considering the most competitive option can provide significant relief to the monthly payouts. Moreover, EMI affordability also increases the possibilities of timely payment.
Prioritise EMI payments
Home loans are nothing but a borrowed financial help that comes with a liability of repayment within a given time. So, loan EMI payments should be the topmost financial priority over any other monthly expenditure.
Borrowers can schedule their EMI payments closer to the date of their salary or other revenues. This way, they can check any defaults due to fund insufficiency and avoid the adverse impact on their credit profile as well as financial position.
Furthermore, continued repayments before the due dates enhance borrowers’ creditworthiness, whereby repetitive and long-overdue missed payments can lead them to lose the ownership of their mortgaged property.
Opt for repayment at increased EMIs
Although it may seem difficult to manage, opting for higher home loan EMI can be beneficial in the long run. By paying the instalments at a high amount, borrowers can shorten loan tenors which suggest lesser interest charges. This way, individuals can clear their debts sooner and save a considerable amount from paying towards the interest.
So, cutting down non-significant expenditure and assign the amount thus saved to instalment payment would be an ideal way forward. Nonetheless, borrowers should analyse their affordability and monthly budget before choosing for higher payments as it increases the risk of default too.
Choose to make a high down payment
When purchasing a house, applicants need to pay initial token money or down payment, which typically amounts to 10-20% of the entire value of the property. After that, they can avail the remaining amount, a maximum of 80% of the total property price, as a loan. However, if you can make a high down payment, it can reduce the EMI amount significantly.
Utilise an EMI calculator to make a prior assessment
Managing these long-term instalments can be easy if borrowers assess the EMI amount beforehand. In this process, applicants can use an online home loan instalment calculator to find out several EMI options depending on the tenor and advance amount.
The benefits of calculating EMIs before taking a home loan are many. Like, individuals can make an informed decision based on their monthly earnings, expenditures and other financial factors.
Opt for foreclosure or part-prepayment
Individuals can also assign their additional fund availability like investment maturities, returns, bonuses, etc. for part-prepayment or foreclosure of the loan account. It can contribute significantly to tenor reduction.
Furthermore, if these options can be used during the initial years of home loans, the principal amount can be brought down significantly, thus reducing the EMIs as well.
However, depending on the lender, these facilities may invite additional costs. Individuals should compare these additional charges to the amount they can save and pick the right option.
Some lenders also bring pre-approved offers to make financing quick and convenient for borrowers. Several financing products like loans against property and home loans come with these offers. Individuals can look for their pre-approved offer only with their essential details.
As for efficient loan management, while deciding loan instalments, applicants need to take a lot of financial factors under consideration. However, a crucial insight is to know how much home loan EMI they can afford without compromising with necessary monetary commitments. Borrowers must, therefore, ensure the EMI suitability and refrain from seeking a loan amount that exceeds their repayment capacity.