After you have bought your dream house with the help of a Home Loan, it is now time to start planning for the repayments. A Home Loan is a significant financial commitment, wherein repayment would run into Lakhs (or Crores), and the repayment tenor can go up to 30 years. For some, it entails repaying Home Loan EMIs for a large part of their working life. Managing a steady flow of income as well as minimizing other expenses is essential to repaying EMIs on time.
It is generally not possible for anyone to predict his/ her financial future for such long durations. But as you are invested emotionally and financially with your home, it is essential to undertake all possible steps to repay the Home Loan successfully. Not only does successful repayment of Mortgage allows you to honour complete ownership of your home, but it also offers you the opportunity of planning your investments with more freedom.
Secrets to repaying your home loan successfully
The three essential components that need to be managed for repaying the Home Loan successfully are Home Loan Interest Rate, home loan EMI, and home loan repayment tenor. To ensure success, prepare a financial plan with these three factors in mind.
Being a financially informed individual, you will have invested your savings in various types of investment schemes. The main purpose of any investment is to offer maximum returns and improve your cash flow. As your Home Loan is a significant financial liability, you must assess your returns from your investments. If the rate of return against your investment is lesser than the rate of interest against your Home Loan, then it makes financial sense to liquidate your investment and divert the funds to your Home Loan repayments. Alternatively, you can liquidate your low-interest bearing investments and invest the sum in investments that offer higher returns. The higher returns on investment can be used to repay your Home Loan.
For instance, ICICI Bank Home Loan Interest Rates start from Rs. 8.65% p.a and can go up to 9.25% p.a for a salaried individual. In comparison, the ICICI Bank interest rates against fixed deposits (for 10 years) are 6.75%. Now, if you factor in the tax rates, there is no deduction available for interest income from Fixed Deposits, while Home Loan interest rates are tax-deductible for up to Rs. 2 Lakhs per annum. So, it would be financially wise of you to liquidate your Fixed Deposit and reinvest that amount towards repayment of your Home Loan. If you ever require additional funds, you can always get a Home Loan Top Up for such requirements.
Every taxpayer, subject to TDS, receives a tax refund at the end of the year. This amount is nothing short of a windfall as this amount has already been paid. So, instead of using this amount for leisurely spending, you can divert it towards your Home Loan repayments. Similarly, the amount you receive as a bonus from your employer, gifts from a relative, or any other source, should be used to make loan repayments. This payment would be over and above the regular EMIs and thus will help you repay Home Loan with more pace and that too, before the completion of the actual repayment period.
Your Home Loan EMIs are determined based on your past and present income. Now, with time, your income would rise steadily. Whether you are an employed individual, self-employed professional, or a businessman, your income will increase gradually with time. The increase in income should not be used for splurging. Instead you can consider routing inflows towards payment of your Home Loan. As there are no prepayment-charges applicable against Home Loan repayments, you can pre-pay your Home Loan without any worries. Paying extra EMIs will help you repay your Home Loan quickly as well as reduce your interest rate expenses substantially.
With the push by the Indian government for affordable housing and intense competition among the lenders, the Home Loan interest rates are already amongst the lowest in the market. Recently, RBI has directed all banks to offer Home Loans linked to an external benchmark, such as the repo rate. During the last few months, RBI has avoided increasing the repo rate and has rather reduced it significantly. So, now opting for a Repo Rate Linked Home Loan, you can enjoy the benefit of lower interest rates against your Home Loan.
Lower interest rates entail lower EMIs and lower outflows on interest payment. Thus, you can repay your Home Loan before the original tenure. For instance, when you avail of an ICICI Bank Home Loan linked to the repo rate, the interest rates start from as low as 8.65% p.a. Now, any reduction in repo rate in the future by RBI will further reduce your home loan interest rate.
Although this is a pre-step to availing a Home Loan, it is worth mentioning here that one must assess her income and liabilities before locking an EMI schedule. If you can afford the EMI with ease, the chances are high that you will repay the same stress-free through the tenor. In situations of financial stress, cut down on unnecessary expenses and save as much money as you so that your EMIs remain easy on your pocket always. It indeed is a great idea to build a backup fund for 3-6 months of Home Loan EMIs. This would ensure successful payments every time.
Buying your own home is undoubtedly one of the most significant financial achievements of your life. To endure the new asset without any hassles, a little financial discipline will come handy.
Also Read: Best Home Loan Providers in India
To apply online for Best Credit Cards in India, Secured Loans and Unsecured Loans, visit mymoneymantra, the leading online lending marketplace that offers financial products from 100+ Banks and NBFCs. We have served 7 million+ happy customers since 1989.