Have you ever met someone who has been excited at the prospect of borrowing a home loan? Exactly. Home loans translate to long-term financial commitments, which can make any normal human being nervous. However, buying a home using only personal funds, without a loan, is a sure sign of poor financial acumen.
Home loans are necessary for real estate purchases irrespective of buyers’ financial standing. They act as a hedge against the rise in the price of property. Repaying home loans doesn’t have to be stressful and overwhelming. When managed smartly, the burden of home loans can be eased to a large extent.
Put promotions to use
When you take a home loan, consider the equated monthly instalments (EMIs) as the least amount to be paid every month.
Take every opportunity to pay more than the prescribed EMI whenever possible. Your income will inevitably increase during the tenure of your home loan. As your income increases, raise the amount of EMIs paid in order to repay faster and incur lower interest payouts.
You could maintain a constant percentage of 50% of your take-home pay as EMIs. This will not only take a load off your mind but also take the burden off your overall financial state.
Utilise windfalls
Once in a while, it is very likely that you will experience a financial windfall of sorts.
This could be in the form of bonuses from work, an inheritance from family members or even gifts from those who wish you well.
Using such lump sum amounts to prepay your home loan is a wise option to consider. Most banks don’t penalise borrowers for prepaying loans. This means you can confidently pay off your home loan ahead of time for peace of mind.
Refinance
Another commonly used option you could consider to make repayment of your home loan easier is to refinance the loan.
If another lender is willing to lend you money at a lower interest rate with better terms of repayment, you should definitely consider transferring the remainder of your loan amount to them. This practice, called refinancing, will reduce the amount you have to repay.
Reconsider investments
A prudent individual always factors regular investments into his or her financial plan.
While this is a smart practice, it could be reconsidered if there is a home loan involved. If the returns on investments are lower than the amount of home loan interest being paid, it might make more sense to redirect those investments towards prepayment of the home loan. This way, the funds work more efficiently by reducing your commitment.
One thing to note, however, is that savings and existing investments should never be exhausted to prepay home loans. They are meant to protect you from possibilities of financial uncertainty. They should only be considered if your debt is too deep and there are no other ways to repay the loans.
A home loan doesn’t have to be an enormous burden you have to tote for the rest of your career. Consider the suggestions mentioned above and free yourself.
This article was originally published on www.thehindu.com
