Most people can only dream of owning a home of their own with the help of a home loan, which is often the biggest loan they will ever avail in their lives. The cost of real estate properties often fluctuates but mostly have an upward trend. This means that home loans are often higher in quantum than other loans. Most people also choose the option of a longer repayment tenure, even if it means that they end up paying more interest in the long term, only because it translates to lower Equated Monthly Instalments (EMI). This reduces their monthly home loan burden. However, it still leaves very little finances left to meet other expenditures such as savings, investments, and even day-to-day essential expenses.
Whether you have a single income or additional income from other sources or from a co-applicant, being able to reduce your home loan burden over time can give you more peace of mind. Here are some tips on just how to do that, without having any more sleepless nights on how to pay off your home loan:
For new home buyers borrowers:
If you are taking a new home loan, here are some tips for you:- Try to put down a bigger down-payment: Most home loan lenders provide only between 75% and 90% of the property cost as the loan. This means you have to arrange between 10% and 25% of the property cost anyway. But what if you could somehow manage to pump in more funds into your down-payment? This will obviously bring down the quantum of loan that you need to borrow, which means lower interest rates, which also means lower EMIs. A higher down-payment is also attractive to lenders because it reduces their risk, thereby increasing your chances of loan approval too. However, this is an option that you need to consider only if you already have sufficient funds in your emergency account and other investments. Dipping into these to pay a higher down-payment might put you at risk of not having enough of savings later, which might result in having to borrow again, so tread carefully with this option.
- Choose a longer loan tenure: The advantage of a longer loan tenure is that your monthly payments are less, leaving you more money in hand for savings, investments, and other expenses. However, it also means that you will be paying more interest over time. Still, you always have the option to make partial pre-payments (subject to your bank’s conditions). For floating rate loans, banks are not supposed to charge a prepayment fee. For fixed rate loans, banks can either charge a fee or waive it off. So it would be a good idea to choose a longer loan tenure and make partial pre-payments whenever possible. Even if you make just one EMI worth of a prepayment, it can bring down your interest and tenure significantly. Make use of any bonus, inheritance, tax refund, gift, etc. to make prepayments whenever you can.
- Choose the right lender: With so many banks offering home loans at attractive interest rates, it should not be difficult to get the home loan that is just right for you. However, it is important to compare home loans to arrive at the right decision. The internet makes this easier for you as all lenders have websites with details of the loan amount, interest rates, processing fees, maximum repayment tenure, etc., as well as online EMI calculators. If any information is not available on the website, call the customer care number to find out. Use the EMI calculators to find out exactly how much EMI you will be paying for each different lender. Making the right choice from the very beginning can help to considerably bring down your home loan burden.
For existing home loan customers:
If you already have a home loan, the best way to reduce your home loan burden is to research and compare different lenders for a balance-transfer home loan. This will give you the option of extending your tenure and getting lower interest rates. If you try to extend your tenure with your existing lender, it will become “loan restructuring’’ which can negatively impact your credit score and credit history. However, keep in mind that your balance transfer loan would involve charges just like a fresh home loan, such as processing fees and administrative charges. Do a cost-benefit analysis to see if the fees are still worth transferring over your loan in terms of savings long-term. If you feel it does, then choose a balance transfer loan. You might even get a top-up loan along with it which can be used for various purposes connected to your home, if you did not get the amount you required from your existing lender.
Follow the tips given above and whether you are just going to take a home loan or already have one, you can rest assured that your home loan will not give you nightmares anymore.
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