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How to Manage Home Loan EMIs Efficiently?

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Highlights

  • How can you manage the Monthly Installments of your Home Loan in an easy way?
  • Know about all the points that can help you in managing your EMI such as Balance Transfer, Part prepayment, Opting for Lower Interest Rates, etc.

In a country like India, the primary priority of any common individual is to have his or her own home. But with the surging property prices, many people are not capable of purchasing the house they want by paying the amount in one go. That’s where a home loan comes to help such individuals. Provided by several banks and housing finance companies at affordable interest rates, a home loan helps people in buying the property they like and repaying the amount in equated monthly installments (EMIs). Availing a home loan is a quite common sight in India. Make the required down-payment, meet the eligibility criteria, submit the documents, and the lender will disburse the amount into your account.

But there is something more important than opting for a home loan – Managing your Home Loan EMIs. Yes, this is something that people often enquire about as home loans are generally taken for a long time and hence demand a long commitment from your side. Missing any of the repayments can affect your credit score negatively. Other than that, this missed repayment can lead to penalties. You should understand this fact that opting for a home loan can be a huge financial decision for you. So, you should know how to manage your Home Loan EMIs efficiently and this article will help you do so. Keep reading to know more!

Things That Can Help Manage Your Home Loan EMIs

There are a few points by which you can manage your monthly installments efficiently. But you need to keep this thing in mind that some of the points have to be applied before opting for the home loan and some, after you have opted for it.

The points to manage your home loan EMIs before opting for the loan can be opting for lower interest rates and making higher down payment. While to manage your EMIs after you have opted for the home loan, the points to consider are the optimal use of Home Loan EMI Calculator, opting for the prepayment and balance transfer Facility at the right time, etc. We are telling you about each of these points in a detailed way so that you can manage your EMIs intelligently. Do check them out!

Use of Home Loan EMI Calculator

When an applicant opts for a home loan amount, the applicant is committed to making the repayment via Equated Monthly Installments (EMIs). The EMI amount consists of a portion of the principal and interest amount. One of the most important ways to manage your home loan EMIs is to get an early estimate about the EMI amount you will pay during the tenure. A lot of people neglect this point and pay the price later by missing their repayments because suddenly, they found that the EMI amount is well beyond their repayment capacity. That’s why it is important to have an idea about your EMI with the help of the Home Loan EMI Calculator.

A home loan EMI Calculator is an amazing financial tool for an individual who wants to buy a home. With this easy-to-use tool, you can have a clear understanding of the amount that needs to be paid every month as EMI. During your home loan journey, planning your EMI is one of the most crucial things.

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In order to use this tool, you only need a few details such as Required Loan Amount, Rate of Interest, and required tenure. After feeding these details into the calculator, the tool will give you exact results about the EMI amount, Interest Outgo and total amount payable during the tenure. After knowing the EMI amount beforehand, you can decide whether this EMI will be within your repayment capacity or not. Otherwise, you can use the tool with different values to get the desired results for as many times as you want. Let’s understand this through an example.

Suppose an individual wants to opt for a home loan of INR 35 lakh for a period of 15 years. The rate of interest is 8.00% per annum. So what EMI amount he will be paying every month? Let’s find out this in the below table.

Loan AspectDetails
Required Home Loan AmountINR 35 lakh
Rate of Interest8.00% per annum
Required Tenure15 years
EMI AmountINR 33,448
Interest OutgoINR 25,20,608
Total Payable AmountINR 60,20,608

So, you can see the applicant would have to pay INR 33,448 towards the EMI amount with an interest outgo of INR 25,20,608. If the applicant does not find this EMI amount suitable to his repayment capacity then he is free to calculate it with different values. Having an early estimation of the EMI amount is an amazing way to manage the Home Loan EMIs.

Opt for Lower Interest Rates

Do you know that interest rates directly affect your EMI amount? Well, higher your home loan interest rates would be, higher will be your repayment amount and vice-versa. So, one of the efficient ways to manage Home Loan EMIs would be to choose a lender that can provide you a home loan at affordable interest rates. This will help in making your EMIs pocket-friendly and within your repayment capacity.

While finalizing the rate of interest for you, a lender looks at various factors such as your age, monthly income, property value, property location, existing obligations, and credit score. So, before choosing a home loan facility for yourself, it is important that you compare multiple lenders and choose the one that can give you the lower interest rates based on your requirements. If you do this, the EMI amount would not be an issue on the due date.

Redefine your Income and Spend Accordingly

As we told you that home loan is usually a long-term commitment, and in order to manage your Home Loan EMIs, it is important that you relook your income and spend according to your EMI amount. You need to understand this fact that after opting for a home loan, a fair percentage of your monthly income would be going towards paying your home loan EMIs.

Also, your monthly income would not increase suddenly, so you will need to utilize your income accordingly to manage your Home Loan EMIs in a better way. Because if you keep spending like you used to do before taking a home loan, there is a possibility that you could miss your repayments which can ultimately lead to penalties and a negative impact on your credit score. For example, if your monthly income is INR 60,000 then it would not be a wise decision to opt for a home loan EMI of INR 40,000. Always try to opt for an EMI amount below 50% of your monthly income so that you can pay it on time.

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One of the other ways to put a hold on your spending is to curb your credit card transactions and other unnecessary expenses else it will hinder your repayment capacity. Use your credit card only on those expenses which are quite necessary and that you can pay on time. To manage your home loan EMIs in a cost-effective way, you need to stop all your unnecessary spendings such as frequent outside dining, partying, etc. This will help you repay on time.

Make Higher Down Payment of the Loan

You must have known this fact that lenders only provide 75% to a maximum of 90% of the property value as the loan amount. Other than this, the loan amount also depends on the monthly income and credit score of an individual. So, suppose the overall value of your property is INR 40 lakh and the lender agrees to provide a loan amount of 80% of its value which will be INR 32 lakh. You will have to make the down payment of the remaining amount of INR 8 lakh initially to get the home loan of INR 32 lakh.

So what you can do to manage your home loan EMIs is to make a bigger down payment so that you don’t have to borrow a large amount from the bank. When your principal amount will be lower, your EMIs will be automatically lower. This will also depend on the tenure you will be choosing. Also, there won’t be any burden of a bigger loan amount on your shoulders.

Make Part-Prepayment of the Home Loan

One of the amazing methods to manage your home loan EMI is to make a part prepayment of your home loan amount during your tenure. Part prepayment is the facility that lenders provide to the borrowers through which they can pay a lump sum amount at any point in your tenure. With this facility, an individual can lower his or her principal loan amount. When you use the Home Loan EMI Calculator, you will be able to see the Amortization Table with which you can know the interest amount and principal outstanding balance at different points in your tenure.

If you look closely then you will notice that the principal outstanding amount tends to be higher during your initial loan years. So, it would be better if you make part prepayments in the initial years of the tenure. Also, you will not need to pay any charge while opting for the part prepayment facility.

Let’s understand this through an example. Suppose you have a home loan of INR 30 lakh for a period of 15 years. The rate of interest is fixed at 7.75% per annum.

On the basis of these details, the EMI amount would be = INR 28,238

Total Interest Outgo will be = INR 20,82,889

Suppose at the end of 5th year, the applicant wants to make a part prepayment of INR 5 lakh. At this point, the principal outstanding amount is INR 23,52,980.

After paying the part prepayment amount of INR 5 lakh,

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The new principal outstanding will be INR 18,52,980 that he has to pay, in addition to interest on it, in the remaining tenure of 10 years.

So, the new EMI amount would be = INR 22,238

You can see the difference in the EMI amount after making a part prepayment of INR 5 lakh. You can also lower your tenure if you keep paying the same EMI amount for the new principal outstanding amount.

Balance Transfer Facility

Sometimes it is hard to manage those Home Loan EMIs which are quite higher because of the higher interest rates. Suppose an individual has been paying his Home Loan EMIs on time from the last 30 months. But now he feels that interest rates are a bit higher and he has been struggling to pay the higher EMI amount. For borrowers like him, the Balance Transfer Facility could be the perfect option.

With this facility, an individual can transfer the outstanding balance to some other lender at lower interest rates. To opt for this facility, you have to pay a certain fee that changes from one lender to another. With the help of lower interest rates, the EMIs could be substantially lower than before. Another thing that you need to keep in mind is that the bank will only provide you a balance transfer facility if you have been paying your EMIs on time without any fail and have a good Credit Score. Other than this, the lender will also check your property for authentication purposes.

Opting for a Balance Transfer Facility in the initial years of your loan can help you in reducing your interest payments over time. The reason behind this is the higher portion of the interest amount as compared to the principal amount in the initial years. Let’s understand how you can manage your Home Loan EMI through an example.

Suppose you already have a home loan of INR 30 lakh for a period of 15 years at an interest rate of 9.75% per annum. After paying EMIs on time for 5 years on a trot, you want to shift to a different lender who is providing an interest rate of 7.75% per annum. So, let’s see how much you can save via this Balance Transfer Facility in the below table. Have a look!

Loan AspectDetails
Existing Loan AmountINR 30 lakh
Interest Rate9.75% per annum
Tenure15 years
EMI at the current interest rate of 9.75% per annumINR 31,781
Estimated Interest Outgo at 9.75% per annumINR 27,20,558
Interest Paid till now ( 5 Years )INR 13,37,137
Outstanding Balance at the end of 5 yearsINR 24,30,283
EMI at the new interest rate of 7.75% per annumINR 29,166
Interest Outgo at the new interest rate of 7.75% per annumINR 10,69,635
Interest Paid till now + Interest for the remaining 10 yearsINR 24,06,772
Estimated EMI SavingINR 2,615
Estimated Interest SavingsINR 3,13,786

So, you can clearly see that opting for a Balance Transfer Facility could be one of the most crucial points in managing the home loan EMIs. From the above table, you can see how the facility is helping you in lowering the EMI amount by INR 2,615 from before. Other than this, you can also save around INR 3 lakh in the interest outgo of the home loan.

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Personal Loan Interest Rates September 2020
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.75% - 18.49%
IndusInd Bank11.25%
Kotak Bank10.99% - 20.99%
RBL17.50% - 24.00%
Standard Chartered Bank11.00% - 15.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates September 2020
Axis Bank7.75% - 8.55%
Bank of Baroda7.00% - 8.40%
Citibank8.20%
HDFC6.95% - 8.00%
ICICI Bank6.95% - 8.05%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank7.20% - 9.30%
LIC Housing6.90% - 7.90%
Piramal Capital & Housing Finance9.00% - 9.10%
PNB Housing Finance8.60% - 9.45%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI6.95% - 7.60%
Tata Capital9.20% - 9.35%