Smart ways to manage your home loan

If one is going forward to avail a home loan, they are most probably making their biggest financial commitment yet. Home loan is a smart way of converting your dream of buying a home into reality, without much digging into your savings. But when it comes to paying the home loan equal monthly installments (EMI’s), it’s not always easy to handle the unforeseen overheads. So, just try to manage your home loan.

Here, some easy ways to sensitively manage your home loan!

Let’s see these easy methods–

• Pay a higher EMI if you can
• Manage your funds well
• Try partial pre-payment
• Move to a bank/banking institution that charges lower interest rate
• Use a mortgage calculator
• Don’t delay or miss your monthly payments

1) Pay a higher EMI if you can

It is one of the best way to ensure that you are able to repay your loan amount before the home loan tenure ends.

By paying slightly higher EMI’s you can save off a significant number of months or years from your loan period. 

The home loan buyer must invest his money wisely to generate sufficient funds and improve his equity. It is best to take a loan for the shortest tenure if you can afford. 
 

2) Manage your funds well

The objective while dealing with loans and investments is to maximize cash flows. Compare your monthly payments (outflow of funds) with monthly returns (inflow of funds) on investments. For example, if you find that certain investments are not giving enough returns or have turned futile over time. It will be beneficial to close those and pool in the funds towards the EMI’s on your home loan. Try to save some money by investing in options that give returns of 12% to 15%. This will get you more income than the 10.5-11.5% that you will be paying as interest on your loan. Click here to read about SBI home loan service in India.
 

3) Try partial pre-payment
The longer you take to pre-pay the loan amount, the more loan interest will be charged.

Partial pre-payment is a speedy way to lower your loan tenure and decrease the loan obligation. There are many benefits of partial pre-payment. 

For one, most banks do not charge any fee for the facility, and the pre-payment 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 pre-payment.

4) Move to a bank/banking institution that charges lower interest rate
The lenders lower their lending rates at different time intervals due to diversified interest rate reset periods.

You can save on the home loan interest rate by choosing the banks that have lower interest rates.

This can be achieved through ‘Balance Transfer Schemes’ of banks.
Under balance transfer, the entire/major unpaid principal of home loan amount is transferred to another bank for a lower rate of interest.

But you should make sure that you do not make the switch very often or for minor interest rate differential, since each time you shift to a different bank/banking institution, you have to undergo the loan appraisal and underwriting processes, besides technical and legal paperwork, all over again. The lenders also charge a nominal fee about one per cent of the outstanding loan usually for this facility. Follow the home loan market with an alert eye because the loan approver or banks offer productive schemes, especially around the festival time.

5) Use a mortgage calculator

Mortgage calculators can help understand how much home loan you can maintain. These are simple and convenient tools and are easy to operate. You can get knowledge of monthly mortgage payments, cash down payments and interest rate under different home loan categories. 

These calculators will help you determine which home loan scheme/product is the best for you, so that you can financially handle it.

It also helps you to estimate the amount that you need to save for the expenses and investments other than monthly loan payments, such as daily expenses. Click here to read about Home loan against property.

6) Do not delay or miss your monthly payments

Skipping your monthly installments will not only pull out the surplus cash from your fixed budget, but also affect your credit score. Ensure that your loan is never tagged as the Special Mentioned Account (SMA). Banks categorize accounts as SMA’s when the liability/payment remains outstanding for 30-90 days after due payment date. It is vital for you to assess your appetite for loans and not take new one till you have repaid the older ones.

We hope these methods will help you to manage your home loan & EMI.

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