How To Plan Your Home Loan EMIs And Avoid Defaulting On Your Home Loan
Home loans usually come with a repayment period ranging from 20 years to 30 years. Since repaying your home loan and making sure that your Equated Monthly Installments (EMIs) are paid on time can be quite strenuous, there can also be instances where might find yourself incapable of keeping up with your EMIs due to unexpected circumstances such as prolonged illness or loss of your job. Defaulting on your home loan EMIs comes with a cost as it can incur penalties, increasing your total interest cost. However, planning for your future EMIs can help you avoid defaulting on your home loan. Here are a few tips to help you plan accordingly.
Working out your finances is always a good idea when it comes to applying for a housing loan. One can achieve this by simply preparing a worksheet with particulars such as your monthly expenses and income. Not only will this initiative give you an idea about your monthly finances but also help you decide on how much EMI you can really afford if you take a home loan. You can set aside a specific amount for your monthly budget and use the remaining amount as EMI for your loan. One can also consider investing that extra money into mutual funds which give high returns on investments. These spare funds can also be utilised to make your EMI payments on time even if your income is utilised for other financial emergencies.
It is advised to find a home that offers you attractive interest rates as home loan interest rates vary from lender to lender. Take your monthly budget into account and choose the kind of interest rate you want on your home loan,i.e., floating or fixed interest rate. Explore all options available to you before you find the right home loan. To make life easier, most financial institutions and banks offer an online home loan EMI calculator that helps users figure out the most feasible EMIs that he/she can afford.
A Flexi Hybrid Home Loan is an option where one pays only the interest component as EMIs during the initial tenure of the loan. One does not have to pay towards the principal during this period. You can also use this low-interest EMI period to strategize your future repayments with ease. Once the initial tenor has been completed, the EMIs increase slightly as you will be paying both the interest and principal components of the loan. Not only will these loans give you greater flexibility but also ensure that the home loan is repaid without any setbacks or default. You can also choose to pay higher EMIs when your monthly income increases, eventually bringing down the probability of defaulting on your home loan.
A prepayment is the settlement of an EMI before the official due date. Making regular prepayments can go a long way as it not only reduces the total interest on your loan but also enables you to pay off the home loan at a quicker pace. Hence, it is advised to prepay whenever an opportunity to do so arises. You can use the extra inflow of funds you receive after an appraisal or a promotion to prepay your home loan and bring down the EMI burden for the rest of the tenure.
One can also opt for home loan balance transfer if he/she finds that the interest rate on his/her home loan is proving to be a burden. You can always move to another lender to refinance your home loan at lower interest rates than the existing rates. Most lenders offer home loan balance transfer at competitive rates. Hence, it is advised to find the one that does not hurt your monthly budget. Once you’ve opted for a balance transfer, your new lender will clear your entire outstanding loan amount with your previous bank. Your existing lender will release your property documents and no due certificate only after the entire balance amount is paid. Refinancing your existing loan at a low rate of interest will consequently bring down your EMIs. One can also opt for top-up loan refinancing on his/her home loan with another lender. This additional amount can be utilised for any financial requirements irrespective of time.
Choose the right lender. Most banks offer pre-approved loans at competitive rates. Hence, it is also advised to go through the terms and conditions before taking the loan. Find the one where you can repay the loan conveniently and avoid delays or default on your home loan EMIsa.
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