When it comes to making a significant financial commitment, nothing quite beats the magnitude of a Home Loan. And why not? After all, it accounts for one of the best investments of your life – a home you can call your own. Of course, as big as this loan is, it comes with a long-term obligation of paying equated monthly instalments (EMIs) often over the course of up to 30 years. While it may all seem rather convenient to begin with, some years down the line, you may not be as comfortable setting aside a large chunk of your income for servicing the loan. This is especially the case, when your children start growing up and you need to invest in their higher education, and when your parents are retired and seek financial assistance with their day to day expenses.
You should incorporate savings as an important and indispensable part of your life. Not only will your savings help you improve your credit score at the very beginning of loan procurement, but over the years will also help you prepay your loan, thereby taking a sizeable financial burden off your shoulders.
Here are some ways wherein the simple habit of saving can help save the day for you.
While getting a loan is rather easy, getting it at a desirable interest rate may not be. Only if you enjoy a very respectable credit score of 650 or above can you expect to get a cost-efficient loan. If, however, your score doesn’t look that good, all you need to do is apply for a savings-secured loan. Here, you can put up our savings as collateral, and obtain a loan from the bank of the same amount as the savings. You can then start repaying this loan and work your way towards building a higher credit score. This will require you to pay additional interest on a loan that you don’t necessarily need, but when compared to the benefits it will help you accrue when you apply for a Home Loan, the interest outgo will definitely prove to be worth your while.
The thumb rule is to pay at least 20% of the market value of your home upfront, after which the bank can lend the remaining 80%. However, if you have saved enough, you can go on to pay 30% or more of the value of your home. Not only will it significantly lower your principal amount, but also ensure that you have to pay smaller EMIs. You can, therefore, enjoy a much relaxed financial position in the years to come. This will also secure quick approval of your loan application, that too at reasonably competitive interest rates.
If you save enough, you can pay at least 1-2 EMIs in a year, above and beyond the 12 that you are required to pay. This simple exercise will help you finish off your loan at a much faster pace, thereby reducing the interest outgo. Besides, the earlier you finish off an existing loan, the easier it will be to get an approval on any other credits that you may want going down the line.
Of course, this will only prove to be of help, if your bank doesn’t levy any prepayment penalty. In order to make the most of this facility, make sure to negotiate for a waiver on the prepayment fee, before signing the loan agreement.
We hope that you now know and understand the significance of savings with respect to a Home Loan. Now that you are aware of some of the simplest ways to reduce your Home Loan obligation, why don’t you go and apply for a Home Loan online right away, and enjoy the perks of living in a house that you can call your home!
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.