5 Tips to Manage Your Home Loan EMIs Like a Pro
Now that you have moved into your new home and have settled down, it is time to focus on another important aspect of homeownership, i.e., Home Loan repayment.
It is extremely crucial to repay Mortgage EMIs in a planned and organized manner for years and years to come without hurting your other life goals and aspirations. Here are 5 handy tips for managing your Home Loan wisely:
Calculate monthly liabilities
Before availing of a Home Loan, you must have assessed the monthly liability on your shoulders. However, if you have missed the same, it is advisable to use a free online Home Loan EMI calculator to determine the available cash in your hands. You can assess if it is prudent to continue repaying the current EMI, or if you can afford to pay higher EMI.
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Likewise, it is also important to know about the maximum EMI amount that you can afford with your income. That is, you must calculate the sum of all monthly repayments you are servicing, e.g., Car Loan, Home Loan, Credit Card bills, etc. Make sure your EMI payments do not come over 50% FOIR.
Manage your finances and investments
Now that the Home Loan repayment has started, it is time for you and your family to plan the finances more carefully. It is advisable that to avoid unnecessary spending, you all pool your funds together and pay for the home expenses from this pool of funds. Discretionary expenses should also be avoided.
It is recommended not to opt for any new loans, as managing multiple EMIs might be difficult for you. Instead, you can opt for a Home Loan Top-Up, if there is any financial exigency.
Another key aspect of your financial management is restructuring your investments. Analyze your portfolio to identify the investments that are not offering desirable returns.
As you can claim tax deductions with your Home Loan repayments, do not base your investment decisions on the tax-saving aspect only. The simple formula is that the return on investment(s) should be higher than the Home Loan Interest Rate you are serving. If the returns are lower, then you should liquidate the investments and instead use that money for Home Loan part pre-payment.
Make part-prepayments regularly
If you have used a Home Loan Calculator, you will understand that the EMI is based on your present level of income. But it goes without saying that over the course of time, your monthly income will increase gradually. Moreover, you might receive windfall payments, bonuses, or a substantial sum on the maturity of some investments during the course of your loan.
You should make up your mind to use windfall gains towards the pre-payment of Home Loan. This will help you save on the interest cost and reduce the interest outflow.
Most lenders allow part-prepayments of Home Loans after completion of one year since the disbursal. So, you should take benefit of this facility and divert your spare funds towards the Home Loan repayment. While some lenders do not levy pre-payment charges, several others do levy minimal charges for the facility of pre-payment. Study the terms and conditions of your loan agreement to know about the pre-payment terms & charges of your lender.
Look out for low-interest rates
Many a time, one may opt for a higher rate of interest due to factors such as low credit score, high FOIR, etc. However, you can always Opt for Home Loan Balance Transfer later on.
It is important to repay your EMIs without fail for a year to be eligible for the Home Loan Balance Transfer offer from another lender.
A lot of Home Loan borrowers are also on the lookout for balance transfer offers ever since the RBI has mandated linking of Home Loan interest rates with external benchmarks. However, the decision to switch to an external benchmark regime from MCLR one should be based on a number of factors, such as repayment tenor remaining, the difference in interest rates, and charges of pursing the new lender’s offer. Undertake a cost-benefit analysis to determine the suitability of the decision.
Do not missout on the EMIs
If you are serving multiple EMIs such as Car Loan, Credit Card, Personal Loan, etc., along with your Home Loan, then there is a serious chance of you missing out on the Home Loan EMI payments. Missing out on even a single EMI will not only reduce your Credit Score but will lead to levying of significant penal charges. Thus, you need to maintain a proper schedule of the Home Loan EMI repayment dates.
It is advisable that you set the EMIs on auto-debit from your account. This way, you will never miss out on the payment dates. Though, make sure that you deposit the money in the account at least three days before the date of debit to avoid any inconvenience. The bank might levy any recurring charges, reducing the available balance and thereby leading to EMI bounce. Maintain sufficient balance in the account, accounting for any incidental charges as well.
All these tips are easy to follow but will go a long way in helping you manage your Home Loan EMIs like a pro. Remember, financial discipline is the key to lead a debt-free life, devoid of any worries.
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