A house acts as a solid asset to your financial, which also fill your heart with peace and satisfaction. Taking a home loan to invest in a permanent asset is a wise idea, which can put an end to your monthly rental bills. However, it is also essential to choose the financing institute, with a suitable tenure and a comfortable interest rate. Applying for a loan might seem like a simple thing, but it requires the applicant to create a budget to manage all their expenses that can allow them to pay their EMIs on time. In fact, one should always consider prepaying the loan as it can help you save up all the high-interest rate money that you will be wasting. The sooner you end the chain of EMIs and your loan, the less interest you will be paying to the bank.
Housing Loan can really destabilize your monthly budget, where an applicant is forced to channel all his savings to repay the loan. But you can solve this problem a little early by prepaying the loan before its tenure. However, we do recommend searching for any prepayment charges that your banks might have hidden from you. Most banks charge for this facility to balance out their profit that they were going earn from the interest rate that you were going to pay them on your loan.
Here are a few smart ways which can help you in pre-paying your home loan smoothly.
- Avoid Pre-EMI Plans
Multiple banks and builder are known for offering a pre-EMI plan on certain projects. Under this plan, the applicant needs to pay only the interest component, till the project is still under construction. Once it is built and you shift to the new place, the usually EMI (principal amount + interest rate) will start. You should only opt for this plan if you have a constant cash flow. It does help in reducing the principal amount, which is considered beneficial in the long run.
- Optimize your windfall gains.
In order put a pre-closure on your home loan, it’s essential that you repay the whole amount in one go. You can do this by efficiently channeling your windfall gains towards the loan repayments. Windfall gains basically consist of all unforeseen profits, like winning a lottery, rise in bonuses or incentives. These funds can help you in making a partial bulk payment, which will significantly reduce your debt.
- Start saving for Pre-Payment Target
Create a budget and start working on saving money to make bulk pre-payments for the loan. So, say if you want to prepay INR 12, 00,000 next year, start saving INR 10,000 every month. You can use recurring deposits to make these savings. This strategically saving plan will motivate you to make more savings, channeling annual bulk loan pre-payments, which will reduce your EMI payments and tenure.
- Use Your Increased Disposable Income in a smart way
All financial experts recommend people to keep an income-to-debt ratio, to determine the increase in the disposable income increase. This technically means that if your income increases, then you should also consider increasing your EMI, which will help in paying off your debt a little bit early. Note that decrease in EMI affects the interest component while keeping the principal amount constant. So if your interest rates are falling, try reducing the tenure than EMI, by repaying the loan earlier than its due date.
- Loan Overdraft Facility
There are dozens of banks in the country who are offering multiple innovative financial services that can help in efficiently repaying the loan. And Loan overdraft is just one amongst them. Basically with this facility, if a borrower feels that he is left with ample of fund even after making the EMI, you can deposit the sum left with you in your loan account using this facility, which can be withdrawn by the borrower whenever he wants if required.
Verdict
The bottom line for any loan or debt is simple if you can afford to pre-pay it today then do it today. There is no point keeping a debt and paying interest over it for no reason. Applicants should focus on reducing and eliminating their liabilities, instead of keeping them around. Home Loan is amongst the biggest financial commitment, which should be repaid as early as possible. However, consider discussing the prepayment charges with your bank executive before making these pre-payments.
