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Home loan and EMI strategies!

Whenever we take a home loan, there come certain questions in our minds. You will find some of your answers in this article. For example: What should be the future strategy to pay my home loan? Should I pay the maximum amount of down payment? Should we pay off or continue?

Is it a good idea to get a home loan?

A home loan is an incredibly significant scheme. The government promotes that every citizen has their home in which home loan serves as the best helping tool. This facility is provided by Banks and NBFCs at a very nominal rate. Home loan in fact is the least expensive loan when we compare it to car loans, business loans, personal loans, and education loans.

Under section 80c and section 24 in the constitution, the government provides many kinds of rebates for home loans. So, a Home loan is a good idea provided we pay the EMIs regularly.

Should we pay off and foreclose?

You need to analyze if you have any big amount of expense in near future i.e education fee, wedding, etc. Suppose you have lump sum liquidity available. And in near future, you need your money for your education fee. So, in that case, you should not pay off your home loan. The important purpose should not suffer. Do not stick up your money in a home loan.

Income tax rebate fall

If you are paying much amount of money as your tax payment, then continuing a home loan is an incredibly wise idea. There are some sections in our constitution regarding income tax. According to those sections, you can get benefits up to 3.5 lakhs on single properties, and the profits included in the last budget give benefits of rupees 5 lakh on two properties. It means you can reduce your taxable income up to 5 lakh rupees. Continue the loan and do not pay it off if you pay lots of income tax.

Payment in parts

If you receive a big amount of liquidity, it is always a wise idea to divide it into payment and investment. With this strategy not only you make long-term returns but also you will use the benefits of section 80c. Use the part payment process in a disciplined manner.

Now we will discuss few points on how a new or an existing home loan borrower can reduce the EMI of their home loan.

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What should you do if

You are a new Home Loan borrower

Firstly, you should find a lender who can provide a home loan at a lower interest rate. It is an overly complicated job to find an appropriate lender.

Let us gather few ideas which can help you get a good deal on home loans.

  1. Try to opt for a longer repayment duration on your loan – However, in longer tenure borrowers end up paying more interest that is why you should opt for longer tenure only if you are not able to afford EMI. You may try to maximize your EMI payments but not more than what you are able to pay every month.
  2. Analyze the rates of Interest offline as well as throughout the internet – When you do your home loan research there may be good offers through your agents but there is also another way to check it online as well and have a summarized look at the rates of interest, fee and other charges of different lenders. Thorough research will ensure you the best deal for your home loan.
  3. Make a bigger down payment – As home loan lenders are allowed to finance up to 80-90% of the property’s value and those who are looking to avail a home loan have to contribute a minimum of 10-20% as a down payment. So, instead of arranging just the minimum down payment, it would be prudent to provide a higher contribution from your own pocket.

 

The higher you contribute as a down payment, the lower your LTV ratio will be.

LTV ratio- Loan to Value Ratio. It means the ratio of a loan to the value of the property purchased and the loan amount required would be. Consequently, it will increase your loan eligibility and enhances the chances of loan approval. Do not overstretch your finances in order to make a higher down payment.

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What should you do if

You are an existing Home Loan borrower

Few simple steps to follow in case of existing Home Loan borrowers are -
  1. Refinance the loan by changing your lender – If you think you have taken a loan at a high-interest rate you always have an option to refinance it. Banks offer interest rates based on the MCLR regime which changes from lender to lender.
  2. Negotiate the service terms with the existing lender – You need to maintain a good relationship with your existing lender, you can negotiate the service terms of the home loan. This way you may be able to procure lower interest rates on your loan amount.
  3. Make your home loan prepayment from time to time – It is important to repay your loan payment on time because it reflects in your credit history. it also reduces the loan liability.

For more such information, keep watching this space!