Buying your own home is a big deal and there’s no doubt about that. You can either use up your savings to pay for the home or you can apply for a home loan. The Home loans are a prudent choice given you maintain your repayment capacity throughout the tenure of the loan. It is a huge commitment to take on, mainly because it can go on for years and can become a worrisome burden if you don’t manage your finances or the repayment properly.
How to manage your home loan effectively?
The periodical EMIs can often become a cause for concern if the loan is not managed well. Here are a few tips that you should consider while paying off your home loan debt.
Increase your EMI amount
One of the ways to close your loan debt sooner is by paying a higher EMI than is required by you. In this way, you can save a significant amount of money on interest payments. The longer the loan stretches, the more interest you have to pay. By increasing the EMI amount, you are also bridging down the repayment tenure.
Take advantage of the prepayment facility
If your loan provider allows prepayment of the loan without charging a penalty for it, you should make full use of it. Partial prepayment is a fast way to bring down your loan tenure and save money from the loan interest charged. The prepayment amount can be little as Rs.10,000 even. Whenever you have some extra cash in your hands, you should direct at least some of it towards prepaying the loan.
Prioritise repaying the EMIs
As already mentioned above, home loan EMIs can be quite a burden, so you don’t want to drag it further by missing EMI payments. Repaying the loan should be your primary concern unless the debt is repaid. Schedule your EMIs with your salary dates so that you can have enough funds in your banks while paying the EMI.
Manage your finances prudently
Now that you know that you should put your primary focus on repaying the debt, you should also know that managing your funds can help you in the process. Begin by drawing up a comparison between your monthly income and expenditure. If your expenditure exceeds your income, it is time to cut down on some of the luxuries taking up so much of your expenditure. Divide your monthly income into three parts, one for savings, one for EMIs and the other for personal spending. You can also try investing in avenues that give you high returns and have extra earnings.
Refinance loan to a lower interest deal
Lenders often lower their rates at different times, so if you see that the total interest payable can become lower if you switch to another lender, you should refinance your loan and make the switch. In this way, you can cut down many interest payments as, and if you maintain the same EMI amounts that you paid to the previous lender, you can end the loan term faster. There will be new paperwork to fill in of course and the refinancing process will charge you a nominal fee.
Managing any loan with responsibility and effectiveness is the sign of a financially smart person. A well-paid loan reflects on your repayment histories and makes your financial portfolio look better. This positively affects the future loans that you might want to take. And in the case of home loans which involve a lot of money over a long extended period, it is especially important to manage your debt well. So you should borrow only what you can pay back and not miss EMIs.