A home loan is a great form of financial assistance that can help you achieve the home of your dreams. The loan is a long-term commitment, and repaying it will surely be a problem rather than requesting it or receiving a penalty from the lender. Let’s learn tips to better manage home loan Repayment.
The Home loan is the most convenient source of income for home buyers. When you apply for a home loan, you must go through a rigorous documentation and approval process. Since the loan amount is huge, the lenders follow a strict procedure, the slightest mistake can lead to the rejection of the application. Home loan repayment can cost you an arm and a leg.
As a home buyer, the home loan settlement process can be financially draining, as it has to be regular with your EMIs. Also, the interest component of the loan adds to your problems. But if you have a specific focus, reimbursement shouldn’t be a big deal. Let’s know the tips for home loans repayment:
- Pay the loan in advance: You can reduce your interest payments by prepaying the loan amount. However, you should confirm this with the lender because some of them charge a penalty or force you to pay a fee if the interest rate is fixed. In the case of a variable rate, no prior closing fee is charged.
- Do not choose a long-term loan: the longer the term of the home loan, the higher the interest rate from the lenders. Instead, go for a shorter period if you are financially stable. This will ensure a quicker home loan payment process and a low-interest rate.
- Increase EMI: If you are in a strong financial position, you can choose to increase your EMI by 5% each year or pay more than one EMI per year. The flow of interest will be reduced considerably. Estimate your financial needs and then calculate the additional monthly premium you can pay if there is an increase in your salary or when you receive an annual bonus. Even if it is a small amount, it can make a difference in the term of the loan.
- Look for Lower Interest Rates – Find out if lenders offer lower interest rates, so you can easily choose to refinance or rollover your home loan balance. Refinancing can be a great decision because it reduces the interest burden, as the principal amount owed by the old lender is transferred to a new lender at a lower rate. This is an easy and efficient way to generate interest and use it in managing other financial obligations.
- Down Payment: As a home buyer, you typically need to make a 20% down payment at the time of your home purchase. If you can withdraw a larger amount for your down payment, the loan amount may be lowered. This will also help lower your interest rate and repayment of the home loan can be quick.
Whichever option you choose from the above, you need to be careful about your financial circumstances first. You must not exceed your disposable income to reduce your home loan.
Also, read- What are the different types of Interest Rates Offered on Home Loans