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Availing a housing loan is quite common in India, considering the high demand within the real estate sector in this day and age for luxury or affordable luxury, and with property prices accordingly increasing.
Once your housing loan has been sanctioned, the next step involves efficient management of the monthly EMIs.
Paying EMIs on time boosts your creditworthiness. Schedule the EMI close to your salary date to ensure sufficient funds in your account and minimize chances of default due to lack of funds. Skipping an EMI attracts stiff penalties from the lending institution, negatively affects your credit score and prolonged default can result in your home being attached by the lender.
One way to ensure that your interest payment is kept to a minimum is by making loan payments in large chunks. Whenever you receive a salary bonus, a monetary gift from your family, or gain some profits from your investments, it would be wise to use the extra funds to make a pre-payment on your Home Loan. Making a partial pre-payment not only brings down your total outstanding debt, but also ensures that you are saved from shelling out additional money for interest payments.
An EMI of Rs 35,000 EMI may look bigger than an EMI of Rs 23,000, but in this case, bigger is actually better. If you opt for an extended tenure to pay a lower EMI every month, you will actually land up paying much more in interest outgo than if you had opted for a higher monthly outgo over a shorter period. For instance, an EMI of Rs 53,984 for a Rs 60-lakh home loan running for 20 years at 9% interest can become a Rs 48,277 EMI if the tenure is raised to 30 years. However, you will also pay Rs 44.24 lakh more in interest.
Interest rates have a tendency to fluctuate and as the borrower, you need to be aware of current percentages since switching to a lender that offers lower interest rates can help you cut down on additional interest payments. Different lenders reduce their rates at different times due to varied interest rate reset periods. So, looking out for lenders that reduce their Home Loan interest rates at the earliest can be quite profitable for you. But make sure that you don’t make the switch too many times or for minor interest rate differences since each time you switch to a different lender, you will have to partake in the verification processes and legal paperwork all over again.
Try and pay an extra EMI every year. Though it can be tough initially, it pays off handsomely in the long-run. There is usually no prepayment charge for floating rate term loans. By paying an extra EMI every year, you can reduce your overall outstanding principal amount. Your lending institution is unlikely to complain if you repay a little extra every year. Over a 10-12 year period, the impact is great.
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