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At the time of borrowing the loan you are more bothered about the maximum amount you can borrow from the bank, but you are not that much concerned about managing your home loan effectively. There is no set formula to manage the home loan effectively, everyone has different financial cycle and liabilities. You have different financial goals and to achieve your goals you follow different paths. It might be a particular way is applicable in my situation, but it is not feasible at all for you. Some might be looking for lowest EMIs and other might want to repay the loan as soon as possible. It might be some want to avail the maximum loan amount, but others want to borrow the minimum amount to meet their financial requirements. The requirements and situations of different people may vary, but you can manage your loan smartly.
You can take some simple steps to manage your home loan easily. Once you know that from next month or after few months you are required to start paying your monthly EMIs, you should brush up your funds to meet your financial requirements. It is really necessary to take an account of your monthly budget and keep specific amount aside to pay your monthly equated payment against your loan. It is the right time for you to act as a fund manager and take a well-informed decision while paying your EMIs and making partial or pre-payment against your home loan. You should always think for getting the maximum mileage from your available amount to stay tension free and avoid any kind of defaults and delay in your payments.
Make a list of total monthly spending: This is one of the most basic thing, which you can do manage your EMIs well. Take a note of all your monthly spending and even some miscellaneous spending, which can’t be avoided. This will help you to understand your total savings in a month or available cash after all expenditures. This way you know how much money you can afford to pay as EMI. If you find that your monthly spending’s are more, avoid some unnecessary expenditures from your list.
Calculate your funds: You are the one who is going to pay the monthly EMI and you know maximum available funds in your bank after meeting the monthly expenses. If you have invested your money under different saving plans in various banks, take a note of all these. Calculate your returns on the savings. In case, your total savings return in PPF, Mutual Funds, EPF, Bonds and other is lower than your total interest rate, so transfer your funds to your loan to reduce your EMIs. It is always better to close all those savings for the time being till you are repaying your loan. You are paying higher interest as compared to your earnings. This is really a wise move to lower the outstanding amount and interest.
Partial Pre-Payment: There are banks, which don’t charge any fee if you make partial payments against your loan. To ease the burden of the total outstanding amount of your loan the best thing you can do is if you have some extra amount utalise that amount to make partial payments. If you know that your FD is going to be mature soon, or you are going to get a good amount as your bonus, some part of your salary, incentives, gifts from friends and relatives, returns on investments, don’t use that amount to fulfill your personal wishes, rather make payment towards your loan outstanding to ease your burden. This kind of partial payments help in reducing your loan amount as well as interest outgo on the loan. It will also help in closing the loan before the tenure. The banks allow partial payment of minimum Rs. 10,000 or maximum of upto the full payment of your loan.
Change your bank: This is another option you can avail if you find that your bank is charging you more money as compared to other bank. You can ask your bank to reduce the rate of interest or give you a competitive rate. In case the bank is not flexible enough and in no mood to change the rate of interest, then the best option is to switch your bank to the lower rate of interest bank to reduce the total outgo on your loan amount. There are banks, which offer a lower rate of interest to lure more customers. But you should be conscious and play safe while choosing a new lender. You should consider various factor like charges related to pre-payment, charges levy by the new bank as documentation, processing fee and balance transfer fee, etc. Calculate all the linked amount and make a decision based on your calculations. You should also remember that you are borrowing the loan from the new bank all the paper work and documentation will be done a fresh. So it will also consume some time and a part of money.
Increasing the EMIs: This is another option to ease your financial liabilities. You can increase the amount you are paying as EMIs. You can just ask your bank to increase the amount of your EMIs to close your loan faster. Let’s take an instance: Rohit has borrowed a loan of Rs. 30 lakhs @ 9.9% for 25 years and his monthly EMI is Rs. 27,049 per month. He knows that he is going to get a hike in his salary of around Rs. 6,000 per month. So, he can divert that money to pay his loan tenure. He can ask his bank to increase the amount of his EMIs from Rs. 27,049 to Rs. 33,066 per month. It will help in prepaying the loan amount before the tenure within 14 years itself. It will help in saving a good amount as interest. It also gives him a mental satisfaction of closing the loan before the time and divert his spare funds to some long-term saving plans.