It’s always a matter of pride to be a homeowner. Moreover, a permanent roof over your head also gives you a strong sense of security as you grow older. Taking a Home Loan is the most viable option for working individuals as they set about realising their dream of owning a home. However, with Current Home Loan Interest Rates fluctuating all the time, it may take you a while to finally zero in on the most suitable loan option. Then again, once the loan is sanctioned, repaying it in equal monthly instalments by eroding a substantial part of one’s monthly salary over a period of 10-30 years on an average is also a great burden and nerve-wracking experience.
Under such circumstances, careful financial planning plays a crucial role in managing your mortgage outgo smoothly. Also, saving as much as you can and subsequently investing in the right financial products will help you retire more peacefully. Here’s how to go about it.
This is the first step in restructuring your existing financial blueprint. Now that you have the additional responsibility of having to repay a loan, a stringent budget needs to be prepared. Make a comprehensive list of all income sources including investment income and monthly expenditures. Also, take into consideration other short and long-term goals like retirement planning. This should be followed by an objective assessment of your risk appetite as compared to your investment options. If you extend EMIs (Equated Monthly Instalments) for a Home Loan in the retirement phase, you risk putting undue stress on your available funds post-retirement.
A retirement portfolio needs to be planned on the basis of the time period left to repay a loan. If the loan is taken recently with a longer tenure for repayment, try and pay off as much as possible through any windfall gains, bonuses or any additional income. This will help in turn, reducing the amount of EMI while also effectively decreasing the Home Loan’s interest cost. Any amount that you manage to save on interest costs by pre-paying a portion of the loan may be invested in equity-based instruments, the earnings from which shall augment your savings and help you pay off your remaining EMIs as you approach retirement.
For those who have retired already and yet have between three to five years to pay off the full loan amount, it is only advisable that they factor in all remaining EMIs in their post-retirement monthly income. This would also make them eligible for more tax relief on their Home Loan during the post-retirement years.
Your Home Loan is obviously a liability, but at the same time, it’s getting you a permanent asset that will only appreciate in value in future. Make this your motivation to save whenever and wherever possible. Use public transport, refrain from impulse shopping, going on vacations and eating out. Remember that it’s those little drops that finally make the mighty ocean. So, maximise your financial strength potential by taking some necessary hard calls.
As you progress in your career with gradual salary increments, consider revising your EMI amounts. If you increase your EMI payments, it inevitably affects the loan tenure positively, because of the powers of compounding. If the number of earning members increases in your family, say, your son or unmarried daughter, it would also be prudent to get them to share some of your financial responsibilities.
Even if your family members do not assist you financially, they can still be a crucial support system. It should be everyone’s responsibility to ease your financial stress and to motivate you. This can be easily done by ensuring that electricity, water and other utilities including food items are not wasted as also doing small repairs and house maintenance on their own to save a considerable amount of the household’s operational costs. So involve each and every member of the family and clearly outline their responsibilities in cutting extra costs to the fullest extent possible.
While applying for a Home Loan, as a forward thinking and smart homeowner, you need to explore your best repayment options also. You may opt for a repayment plan that’s tranche-based where you need to shell out interest on your Home Loan based on the stage of the property’s construction until it is complete. This would help you save considerable interest. You can negotiate with your lender to fix an amount payable according to your capability in instalments till the house is ready for occupation. Your minimum amount would be the interest on the full loan amount. Anything beyond this fixed sum would go towards the principle. You save on the loan tenure by paying off faster. Alternatively, you could also go for an accelerated repayment or balloon repayment plan also.
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