Availing a home loan requires careful planning. It helps make the repayment easier. Read on to know more about making a smarter financial decision when you borrow a home loan.
Home loans are an excellent way to get the necessary funds for buying your dream home. Also, with lenders willing to provide home loans at a competitive interest rate, getting a loan is easier than before. A home loan is a long-term credit, and therefore, it requires you to be financially disciplined and committed to repaying the amount through the tenure.
So, how do you manage your finances for 15-30 years and ensure that you repay the EMIs without default. The secret lies in being smart with your financial planning. If you are looking to apply for a home loan or struggling with repayment, here are a few tips that can be handy.
Assess your financial condition
The first step in taking any type of loan is to assess your financial condition and know about your expenses and income. You must check if you can cut down on any expenses so that you can divert the savings towards repayment of the home loan. It would also help to prepare a monthly budget and allot a specific amount to every expense. More importantly, you must abide by the budget.
Increase your EMIs
When you are younger, you have no financial dependents on you, and you may have lesser responsibilities. This is one of the reasons why many experts recommend buying a home when you are young. This is the best time when you have minimal or no financial obligations, and you can afford to pay a larger EMI towards the home loan.
This will help you pay off the loan in a shorter period as compared to the regular tenure. So, if you can afford to pay higher EMIs, you can opt for a short-term loan tenure. This also means that the home loan interest rates will be competitive, and the overall interest pay-out will be lesser in the long-run.
No matter if you are availing of a home loan when you are young or not, your primary goal must be to repay the full amount as quickly as possible. When you are debt-free, you can use your money to invest in various money market investment schemes and focus on accomplishing your long-term financial goals.
Pay a bigger down payment
If you have sufficient savings in your bank account or if you have an investment that gives you valuable returns, you can use the surplus amount to pay the down payment. When you apply for a home loan, generally, the lenders finance a maximum of 80% of the property’s value. You must pay the remaining 20% from your pocket.
But, if you can afford it, you can pay a bigger down payment. This would help you borrow less, and subsequently, the EMI will be lesser, and the repayment will be much easier and affordable. Also, when you borrow a smaller loan, you can opt for a shorter tenure, which means you can repay the loan faster and be debt-free without compromising on your other regular expenses.
Take advantage of the balance transfer facility
A balance transfer is a facility that allows you to transfer your home loan from your existing lender to another lender at a lower interest rate. If you find that your lender is charging a higher interest rate, despite the lower market rate, you can switch your loan to a new lender and pay the remaining EMIs at a lower interest.
However, when you opt for a balance transfer, make sure that there are no charges involved. Sometimes, the new lender may charge a balance transfer fee, which is usually a certain percentage of the transferred amount.
Being smart with your finances is the key to managing your home loan
Managing your home loan is not as difficult as it may seem. You need to be a little prudent with your finances, and repaying the home loan must take precedence over other luxury expenses.