Are you excited about moving into the house of your dreams? Yay! We’re happy for you too! Did you take a Home Loan to make this dream come true? That’s awesome! You now need to manage it well.
Finally getting to move into your own house is nothing less than a dream come true. You can finally decide where exactly you want to live, the colour of the walls, what interior design theme you need to follow and so on. There’s no annoying landlord constantly telling you to reduce the volume of your stereo or keep the house a certain way.
You can finally do whatever you want to (no matter how tacky it is) and that’s a great thing. While you prep up for all the house warming functions and make a list of people you want to invite, you must also know exactly how to manage your Home Loan.
Buying a house is nothing less than a milestone in your life. You must make it memorable. How? By knowing exactly what you’re doing with your finances and how you’re managing the burden of a Home Loan, you’ll make things easy for yourself.
Once you’re done with all the festivities and joy of moving into your new house, you realise something. Not very pleasant, maybe. But you realise that you’re supposed to pay EMIs for a fixed period, just to actually own the house you just bought. Unless you’re a millionaire and you don’t care about money at all, this might worry you a bit.
But you have something most others don’t. You have us! We’re here to help you with the process of getting a Home Loan and making the whole process a bit easy on you. How? By giving you a series of tips to manage your Home Loan better. It’s time to take charge of your life (and your loans as well).
Here’s what you can do different (and better) than others to manage your Home Loan:
Now since you have a Home Loan to pay (or maybe a couple of other loans as well), it becomes all the more important to manage your finances well. An important part of doing that is by getting your money management skills in place. You can’t keep messing your money up and later blame it on the situations, people and what not. Don’t worry! We’ll guide you all the way.
For starters, you need to make a list of places you have invested your money in. This should include all those investments you have made like EPF, PPF, postal deposits and even ULIPs. The point is that you must know where your money is and where it’s going to go. If you have invested in places that are making you pay unnecessary interest, you need to close all those investments and focus on prepaying your Home Loan instead.
Saving a good deal of interest is any day better than paying at random places that are not even giving you good returns, isn’t it?
Say Yes To A High EMI
Paying a high EMI can help you manage your Home Loan better. Now, you might think that we’re kidding because how can paying more money every month possibly help you? Here’s how.
Opting for a high monthly payment can help you reduce the loan tenure. As a result, the total interest that you’re supposed to pay to the lender also goes down. So, technically, by opting to pay more every month, you’re reducing your own financial burden. Moreover, it helps reduce the loan tenure as well, so that you get enough time later to focus on other important things in life. Your retirement planning, for instance. You need to think about that too.
You do want a happy, worry free retired life, don’t you? So paying off that Home Loan as soon as you can is the best way out to make way for some other crucial things in life.
Partial Pre-payment. Ever Heard Of That?
Instead of following the usual EMI process and paying fixed amounts towards your Home Loan every month, you could opt for pre-payment. You could use any of those one-time incomes to prepay your Home Loan. For instance, if you got a promotion recently or one of your Fixed Deposits just matured, you could use that free cash and prepay your loan. It’ll not only help reduce your loan obligation, but will also reduce the loan tenure.
Like we mentioned before, paying off your Home Loan early can leave you enough free time and resources to plan other things in future. The best thing is that most of the leading banks don’t ask you to pay heavy charges when you opt for a loan pre-payment. Even if they do, the charges are minimal. But just to be on the safer side, you must always enquire about the pre-payment charges before opting for a particular loan offer.
Switch to a lower rate of interest
Always keep your eyes open and closely monitor the trends in interest rates. As soon as you see a dip, you must think about switching to a lower rate of interest than your existing one. Based on the interest rate reset period, different banks generally reduce their rates at different times. If the reset interest band of your lender is wide, you may be at a high interest rate for a long time after other banks have started to reduce their rates. So, the magic basically lies in being aware of what’s happening in the market.
Switching to a lower interest rate than your existing one will shave off a few years from your Home Loan. You still need to be a little careful. Why? Don’t jump too many times or with low interest rate differences. If you’re getting a good dip in the rate of interest, you should definitely consider switching. But in case the difference isn’t much, it might be a bad idea to go for that switch.
A heartening detail though is the removal of prepayment penalty. This can definitely boost the prospects of a Home Loan switch, easing the cost burden for the loan borrower further. Sounds like a great idea, doesn’t it?
Get The Math Right
Do you know about the existence of loan calculators? Don’t worry! We know you hate dealing with numbers and complex calculations. That’s exactly why we thought of introducing you to these awesome instruments. These calculators can help you understand what loan amount you can sustain. They ask you a couple of questions to understand the situation of your finances and come up with solutions accordingly.
The best part? They are simple and convenient tools and are easy to operate. What’s better than getting to know everything about your monthly loan payments, cash down payments and interest rate? Not just that. After doing all the necessary calculations, these awesome calculators also help you determine which Home Loan product is the best option for you.
After all, you need to opt for something you can financially handle, right? Getting all the calculations in place can also help you plan your other daily expenses accordingly. Since Home Loan EMIs are a crucial part of your monthly budget, you must be able to balance all your other financial commitments as well.
Missing Loan Payments? A Big No-No.
No matter how bad your financial situation is, you need to find a way to pay all your Home Loan EMIs on time. Why? We don’t want you to make these payments on time just because we want you to develop some good habits. That too, but the more crucial thing to consider here is your Credit Score.
Missing EMI payments can severely affect your Credit Score and we’re pretty sure you won’t want that to happen, right? A good credit history is an important part of your financial life. All lenders in future will judge you based on your Credit Score. Your credit history determines your credibility as a loan borrower. Be it for a Credit Card or another loan, you need to have a good credit report to show.
In case you fail to pay your Home Loan EMIs on time, your Credit Score takes a major blow. As a result, the chances of your loans and Credit Card applications getting rejected in future increase significantly. You won’t want that to happen, right? That’s why you need to budget and plan your months properly.
Planning and budgeting is the best way to ensure that you have enough left to make those EMI payments. At the start of every month, as soon as you receive your salary, just take your Home Loan EMI and keep it aside. Keeping it away from your salary account will help ensure that you don’t spend it on unnecessary things.
If you keep all these tips in mind, managing your Home Loan will be like a walk in the park for you. It’s all about managing your money right. If you can do that, there’s no chance whatsoever that you’ll miss your Home Loan EMI payments or find innovative ways of messing it up.
The author is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.
Need help in calculating your EMI? Use BankBazaar’s easy home loan EMI calculator.