Planning home loan EMIs

How to plan your home loan EMIs?


For many of us, after buying a home EMIs could be the biggest expense of the month. Home loans are usually repaid over a 20 to 30 years period. Planning a home loan EMI for such a long duration may seem daunting and impossible at first. But with a little planning and wisdom, you can lead a financially stable and comfortable life through your repayment period.

Defaulting on your home loan may lead you to incur penalties and a steep increase in the interest cost. The trick to planning home loan EMIs lies in being ready for contingency situations related to your health or employment. That said, let us look at some tips and pointers that will come in handy when planning your home loan EMIs.

Chart out your investment plan first

Before applying for a home loan, it is important that you sit down and create a monthly investment plan. The investment plan must include an emergency contingency fund that you will add to every month, your home loan, expenses, and investment or savings. Many new-age homebuyers invest their savings money with mutual funds, shares, and other investment plans that could give them an interest.

Also, it is the advice of many top finance gurus that you schedule your home loan EMI within the first week of receiving your salary. This helps avoid any non-payment instances that are viewed seriously. Penalties don’t just put you back a few steps in your repayment schedule, but they can also negatively affect your CIBIL score.

Choose and change your home loan plan

It is always best to find a home loan plan to suit your monthly budget as the options available for home loan interests are many. The interest rates and plans vary from one lender to another. Take your time to research, study, and compare between various banks and financial institutions and find what will work for you best. Choose between floating and fixed interest rates and get advice from experienced homeowners on what will work best for you. You can ask for the home loan EMI calculator to gauge your home loan repayment.

Also, take your time to periodically update yourself on policy and interest changes of various banks and financial institutions. Various banks offer varying interest rates that can change from time to time. Information about any changes can help you make the right decision and reduce your interest expense significantly.

Make prepayments to reduce your EMI burden

A loan prepayment is a lump sum settlement of an EMI before the due date. A prepayment can be one month’s worth of EMI or more as and when you have a surplus of funds with you. Many experts suggest making one EMI prepayment extra per year. Take advantage of the no-penalty policy for home loan prepayment and put aside a little every month for a yearly prepayment. Though it may seem like a lot, a little effort can go a long way in your loan repayment and can in fact, reduce your loan tenure by a good couple of years.

Increase your loan rate of interest

Did you know? Many home buyers pay nearly 60% of the loan amount in interest. Though a lower rate of interest may seem more affordable to you, in the long run, low-interest rates can actually end up costing you a lot more than higher interest rates. A higher interest rate means a shorter duration, and a lower rate of interest could mean that you are paying back nearly 1.5 times the cost of your home. Take the time to ask the right questions with your loan officers and find out the best plan and interest rate for you.

Things to do before applying for a home loan

Here are some of the other things you can do before applying for a loan to enjoy a smooth home loan borrowing and repayment cycle.

-A good CIBIL score can help you get a higher loan amount at lower rates of interest. You can improve your CIBIL score by clearing out existing loans.

-Increase your repayment capacity by clearing existing debts and improve your debt to income ratio.

-Educate yourself about the down payment, down payment loans, and the pros and cons that go with them.

Planning your home loan EMIs is crucial to enjoying a hassle-free homeownership experience. Taking the time to understand the nuances of a home loan, and sitting down with your loan officer can go a long way. Be patient with loan officers to answer any questions they may have about your loan history as it will be beneficial to both parties.

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