Home loans can be a boon when you are looking forward to purchasing the house of your dreams. However, those can be a burden too. Home loans are long term financial commitments that can alter your finances significantly. Nevertheless, you can manage your loan with some smart tips and ease your hardships. Here are a few tips to do so.
If you can afford, foreclose the loan. Prepayment helps you repay the loan earlier than the tenure and save on a lot of home loan interest rate. However, you might have to pay some prepayment charges. Ensure that the cost of prepayment is lower than the interest you save. It would be best to consider the total costs of prepayment before foreclosing the loan.
- Balance transfer
Interest outgo is a significant component of your total repayment amount. The higher the interest, the higher is your total cost of borrowing. Therefore, if you get a loan with a lower interest rate with another lender, you can transfer your home loan and save money. With a home loan balance transfer facility, you can reduce your interest outgo and get better deals. However, it is vital to look at certain aspects before transferring your loan. It is best to transfer the loan in the initial years when the interest repayment is higher. In addition, you must do a cost-benefit analysis to ensure that transferring the loan would be financially beneficial for you.
- Leverage investments
If you have investments, you can utilise them to reduce your home loan burden. You can liquidate underperforming mutual funds to generate funds for loan repayment. You can also use bank deposits to pay your EMI. If you are not able to pay the EMI’s due to a medical emergency or loss of job, you can borrow against your insurance policy or provident fund. However, liquidate your PF or bank deposits only in emergencies.
- Use additional income
Received a bonus? Got monetary gifts on your birthday? Do not splurge on the latest gadgets. Instead, utilise them towards the loan repayment. Part prepayments are an effective way of reducing your loan burden. You can use additional income received during the year by increasing the EMI. You can also pay more than the fixed EMI whenever you get a raise, earn additional interest income, or get income tax refunds, etc.
- Make lifestyle changes
Curtailment in your daily spending can noticeably help you reduce the loan burden. Defer some travel plans and avoid impulsive spending. Reduce dining out, movie shows or weekend getaways. It would also be helpful if you can reduce paying with credit cards and use cash instead. Avoid taking any more debts and use money frugally.
It’s imperative to repay your loan timely to avoid defaults and penalties. However, if loan repayment is a horror story for you, you probably need to modify your approach. With these simple tips, you can reduce your loan hardship and close off the loan comfortably. Make sure to have a repayment plan ready when you apply for home loan.