Best Practices to Manage a Home Loan

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So many dreams of owning a home come to fruition because of the possibility of attaining a home loan. Home loans truly do make some beautiful dreams come true. Nothing like the joy of buying your own home, and living it up in it. It’s an achievement to be mightily proud of, in this day and age.

While you enjoy the amazing feeling of owning a new home, after getting a home loan, it is also important to manage the home loan like a pro. All said and done, using a huge chunk of your salary to pay off the monthly home loan EMI for 10 to 15 years is no mean joke. It is challenging, requires diligence, planning and discipline. However, there are ways to manage the home loan repayment in an incredible manner, such that it saves you money, time and stress. What if we told you that you could pull this off in a better manner?

Let us look at some life-saving ways to manage a home loan better:

  • Consider paying a slightly higher EMI: This may sound funny at the first instance, but even if you can manage to pay 2000 INR higher than the EMI that the bank requires you to pay, you will save money. When you manage to pay a higher EMI, the extra money goes towards the repayment of the principal loan amount, and thus the interest on the principal reduces. Bit by bit, you will be able to pay off the entire loan earlier, and thus reduce the original tenure of the loan.

    You can access online EMI calculators or talk to us, to understand how increasing the EMI on your loan will save you money. Imagine paying off the loan sooner than you had bargained for. That would save you from tons of stress!

  • Consider prepaying as much of your loan as you can: When you receive that much-anticipated bonus, some maturing deposits, tax rebates, stock money or any unanticipated sudden cash, consider using it to prepay your home loan. This prepayment of the loan will reduce the tenure of the loan! It will also reduce the total interest that you will have to pay on your loan. Many banks allow prepayment of loans. Some do not even charge you anything extra to avail this option.
  • Switch the loan, if you can: When the RBI increases or decrease the policy rates, banks tend to change their base rates of lending. When this happens, the EMIs change as well, with the change in the lending rates. In such times, these banks offer home loans at lower rates. It could even be lower than the loan that you are paying to your current bank. If you come across such a situation, do consider switching your loan to the bank offering the same loan at a lower lending rate. If you get to do this, you will pay a lower total interest amount. It might also help reduce the total tenure of your loan. However, remember to factor in the loan transferring charges that would be levied on this service. It should not decrease the benefits that you could reap from such a transaction.
  • Befriend mortgage calculator: Now this tool ideally should be used before you apply for a home loan, but better late than never. You can use a mortgage calculator to optimize your loan repayment and save yourself time and money. A mortgage calculator will tell you how much home loan can you feasibly sustain. It’s a simple and easy-to-use tool. It will help you figure out your monthly mortgage payments, cash down payments, and interest rates pertaining to different home loan storylines. Using a mortgage calculator, you can understand which home loan scheme/product will be the best choice for you. This way, you can ensure that you can definitely handle this financial responsibility. Mortgage calculators also help you plan your rest of the monthly expenses and investments, and not just your monthly loan repayments. This could truly help your finances in a huge manner.
  • Never default on your loan EMIs: Skipping your monthly EMI of loan repayment is a strict no no. If you default on your loan repayment, it affects your credit score. Many banks categorize such borrower accounts as Special Mention Account (SMA), when your liability/repayment is outstanding for thirty to ninety days. Ensure that your account never gets listed in this category. Plan, scrimp and save, but don’t default your home loan repayments.
  • Don’t bite more than you can chew: Assess your financial situation really well before applying for a home loan. Factor in all your current and future financial obligations, before you think of a huge home loan. Because once you are in it, you have to manage to repay it on time, in a consistent manner. Assess your financial appetite for a loan efficiently. Enlist the help of professionals who will advise you on your loan capacity, after studying your financial portfolio. And do not ever take on a new loan before you finish paying off one home loan, unless you have a new and consistent source of higher income.

Equipped with these nuggets of wisdom, you can now manage the repayment of your home loan like an ace. If done well, you can save money and own a beautiful property for life. Here’s to intelligent financial decisions and ever-useful home loans!

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