Home Loans are necessary to purchase real estate and with the high costs, it can be burdensome to pay off the loan. However, it need not be stressful or burdensome. Here are a few tips to help ease the burden of a Home Loan.
- Increase EMI Payments: Through the course of the Home Loan, your income is likely to increase. Take every opportunity to increase the EMI payment to incur lower rates of interest and also reduce the tenure of the loan.As a rule of thumb, you could pay of roughly 50% of your monthly income towards the loan. This will help close your loan faster when your monthly income increases and also increases your overall financial situation.Another way to effectively reduce the burden on your Home Loan is to increase your EMI by 5% every year. This will reduce the burden of interest significantly.Yet another way is to pay an additional EMI each year. This too will reduce interest rates and if clubbed with the tip mentioned above, can cause a significant decrease in your interest rates. Through the course of the Home Loan, your income is likely to increase. Take every opportunity to increase the EMI payment to incur lower rates of interest and also reduce the tenure of the loan.
- Make use of bonuses: Any unplanned income like bonuses, inheritances or gifts, if utilized to pay off your loan, can be very beneficial to help close the Home Loan faster. Usually, banks don’t charge you for prepayment of the loan. It is therefore wise to prepay the loan in case of a lump sum financial gain.
- Refinance: Refinancing is a popular and effective way of repaying your Home Loan. If another lender is giving you a better interest rate for your current loan, it is a good idea to refinance your existing Home Loan with the lender willing to give you lower rates of interest. Usually, after paying off your loan for a while, interest rates tend to decrease. In case your existing bank isn’t willing to reduce the rate of interest, it is quite possible that other banks are.
- Reconsider Investments: Investing your hard earned money on a monthly basis is a good idea in most cases. However, if your returns on investment (ROI) is lower than your rate of interest on your Home Loan, it is senseless to be investing. Cutting off your investments in this case makes it a financially more efficient move.Nevertheless, one must note to never exhaust savings and existing investments to prepay a Home Loan. These are funds that are put in place to protect you in case of a financial uncertainty.
- Opt for a Shorter Loan Tenure: A shorter loan tenure reduces the burden of interest and helps close the loan faster as well, which in turn results in lower costs. And, although short loan tenures often attracts higher rates of interest, in effect, you will be paying lesser interest than if you had opted for a longer tenure.
- Renegotiate the Loan: Often times, just renegotiating with your existing bank can itself reduce the burden on your loan. Due to the immense competition and the ease at which a loan can be refinanced, banks usually are willing to renegotiate the terms of your existing Housing loans.