Availing credits like a home loan has gained popularity in India due to the affordable interest rates extended by lenders, alongside other customized benefits. Accessing this advance is quite convenient as individuals need to fulfill simple home loan eligibility and prepare the down payment. However, a housing loan mandates borrowers to make repayments by way of equated monthly installments or EMIs.
Failing to pay EMIs or delaying them can lead to penalties and a significant impact on credit score. Since a housing loan is a long-term commitment, individuals must keep a tab on their disposable income.
This would help in the efficient management of EMIs and settle the outstanding balance repayment faster.
Ways to manage EMI and interest outgo on a home loan
Following are ways to reduce one’s interest and EMI on home loans for better financial management.
- Timely repayment
Making timely EMI repayment boosts a borrower’s creditworthiness. A smarter way to manage the home loan EMI repayment is scheduling it with a salary date. This would ensure that an individual has sufficient funds to execute the payment and reduce the defaulting risk. Lending institutions levy a penalty on skipping an EMI, which simultaneously affects the CIBIL score. Moreover, prolonged defaulting can result in the owned property take over by the lender.
- opt for pre-payments
Another efficient way of managing the EMI and interest payment on a home loan is opting for pre-payments. Individuals can utilize a bonus or surplus cash flow to repay the outstanding loan in a lump sum amount.
If the pre-payments are made earlier into the tenor, the interest component is higher, and this ultimately leads to the reduction in tenor. For instance, by prepaying Rs.3 lakh for a home loan of Rs.50 lakh loan with a tenor of 15 years at 9%, one can save up to Rs.3,059 on EMI and reduce tenor. Using a home loan pre-payment calculator would give a precise savings estimate to interested individuals. They have to enter the basic information like principal amount, interest rate, tenor, and pre-payment amount for the task.
- Go for a short tenor
Selecting a short home loan tenor aids in better fund management. This ensures that a borrower pays a higher EMI on time. This also significantly reduces the interest outgo.
Comparatively, a longer tenor reduces the EMI repayment but simultaneously increases the interest outgo.
- Extra EMI payment
Paying an extra EMI yearly also brings down the home loan outstanding balance. In this regard, individuals should opt for a floating interest rate as there are no pre-payment charges levied. Paying off extra EMI aids in reducing the overall principal amount. However, this option must be sought if the repayment tenor is lengthy, like 10-12 years.
Individuals paying a high-interest rate can opt for a balance transfer. They can shift the balance to a suitable lender offering affordable home loan interest and added benefits. This would help in making better savings on disposable income. Moreover, borrowers can enjoy features like a top-up loan, which offers substantial funds. However, transfer charges may be levied on the applicant. Hence, this option must be assessed carefully before proceeding.
There are several HFCs that extend the balance transfer facility without levying additional charges. These institutions also provide pre-approved offers that can make availing home loans, loans against property, etc., faster and easier. You can check your pre-approved offer by providing your name and contact number. Following the suggestions mentioned above would help a borrower to manage the home loan EMIs effectively. This would encourage maintaining a lucrative balance between savings and spending, further ensuring timely EMI and interest repayment.