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How to Manage Your Home Loan Like a Pro

July 07 2017

How to Manage Your Home Loan

Home loans are a great option to finance your new house and are easy to avail too. But, managing a home loan efficiently is not that easy as you might think. A home loan is a long tenure loan hence, it needs your commitment for a longer period of time. The maximum tenure of home loan with most of the lenders goes till 30 years which means you need to the EMIs for 30 years and it’s not always easy to handle the unanticipated overheads.

Manage Your Finances First

Your first objective while dealing with any loan and investments should be to manage your finances and to maximize your cash flows. To achieve this the first thing which one should do is make a monthly budget and try to stick to it throughout the month. This will help you to keep the track of your income and expenditures. Include your monthly payments which are the outflow of your funds along with the monthly return on your investments.

Pay Larger EMIs

The younger you are the lesser responsibilities you have, and this is the reason it is suggested to buy a home when you are young. This is the time you have no monetary issues and your life is going smoothly and you can pay larger EMI towards your home loan. This will reduce your burden as the loan will end in a shorter time as compared to the normal tenure. This way you can save on the interest too. Whether you are young or not your first aim, in any case, should be to lower down your debts as quickly as possible. If your money stream is flowing freely then rather than spending on luxuries and enjoyments you can increase your EMI.

Pay a Bigger Down Payment

If you have enough savings in your account or an investment which is not giving you much return, this is the perfect time to use them. The home loan which you get is not the full amount which is needed to buy your home. You need to pay some amount from your pocket which is known as the down payment. The down payment amount is generally 20 to 30% of the total cost of your home. If you have enough money or it can arrange for it, it would be better to pay more on down payments. This can reduce your monthly EMI as you have initially paid a bigger amount. The other possible thing is that this can reduce your tenure. Both are beneficial for you, whether it be low EMI or low tenure both can save your money and is good for your pocket as it reduces your burden. This will help you to repay your loan faster without paying too much in form of interest.

Transfer Balance for Lower Interest Rates

Lenders lower their interest rates many times due to diversified interest rate reset periods. Or it may be possible that you opted for a home loan with high interest and later you found that there are lenders offering the same loan at a lower interest rate. You can save much by choosing the banks that have lower interest rates. This can also be achieved through ‘A Balance Transfer Schemes’ of banks.

Under balance transfer, the outstanding principal amount of the home loan amount is transferred to another bank, this is done to lower the rate of interest. But before you decide to go for a home loan balance transfer make sure that you don’t make the switch for minor interest rate change, since some banks charge penalties on the switch. So, you have to be sure that while going for the balance transfer you are saving much more than the penalties. For a balance transfer, you have to undergo the loan appraisal and underwriting processes along with the paperwork, all over again.

Go for Partial Prepayment

The longer you take to prepay the loan amount, the more loan interest will be charged. Partial prepayment is a speedy way to lower your loan tenure and decrease the loan obligation. There are many benefits of partial prepayment. For one, most banks do not charge any fee for the facility, and the prepayment amount can be as low as Rs 10,000. A burly bonus, big gains on stocks and shares, income from property sold, any tax-saving investments or fixed deposits that are maturing, gifts from parents or family, rental income and many more such one-time incomes can be used for partial prepayment.