Today real estate prices have gone through the roof in most cities; and we are not just talking about bustling metropolises like Mumbai, Delhi/NCR, or Bengaluru. Buying a home with your own funds is almost ruled out and people have to depend on home loans. However, with a home loan comes another responsibility; and that is to manage the home loan. The burden of EMIs must not impact your lifestyle beyond a point. Always use an online home loan calculator to work out the best home loan option. You obviously would look for the best home loan interest rate and the best tenure for your needs. However, that still does not answer the question of how best to manage your home loan. Keep reading more to get into the details.
Home loan is a long drawn affair
Today, a typical home loan extends for about 15 years to 25 years and that is a long time. It is actually the passing of a full generation and a lot can happen in this period. Your financial situation could become volatile, demands for expenses may rise, the home value may fall; and the list can go on. Since home loans are long drawn affairs, it is very important that such home loans are managed properly. It cannot start after the loan is taken, but must start from the time you decide to take the home loan. Here is a quick take on how you can tackle the home loan liability without breaking sweat.
Get the support of a co-applicant or co-borrower
Normally, if the husband and wife are working, it makes sense to have the wife as the co-borrower. That way, the property title can be jointly owned, the liability can be shared between the spouses and above all, there is the big tax advantage. Both the husband and the wife claim benefits under Section 80C of the Income Tax Act up to the permissible Rs1.5 lakhs. Alternatively, if you are looking to buy a property with your brother or sister, make them a co-applicant and co-borrower, to reduces your burden.
Research options before and after the loan
There are two points here. One of the simplest things do is to use a home loan calculator to work out the EMI and whether you can afford it. The other is to compare the loans across lenders based on the home loan interest rate. You need to go one step ahead. Before taking the home loan, compare across lenders on rate of interest, LTV ratio, tenure of the loan, hidden costs etc and then decide on the lender to opt for. In a competitive world, you can get the best deals. However, your research should not end there. Continue to look for alternates even after your home loan is finalized. You may not be getting the best deal from your existing lender. The first thing to do is to show the comparison and ask for better term from your existing lender. Alternatively, look to refinance your loan at more suitable rate and tenure. You end up saving a lot over the tenure of the loan.
If you can afford lower LTV, then do it
Most of us have the tendency to take as much loan as is available. That is the wrong approach. Instead, look for how much you can afford to pay as your contribution to the loan margin. If the LTV offered is 85% and you only need 70% funding, then you should opt for just 70% funding. Lowering your loan amount is not just reducing your debt and your EMI burden, but also keeps your credit score intact.
You can get a better deal, if you ask for it
Quite often, you do not get the best deals in home loans, just because you don’t ask for it. For instance, if you have a credit score of 790, have a stable high income, and have limited debt; you are rare commodity. Banks should be falling over each other to lend to you, which means you can bargain for the best rates, flexible EMIs and the best loan tenure. The more you ask and the harder you negotiate; the more you can get from your bank.
Banks are flexible, so make the best of it
When you take a loan, ensure that your prepayment cost (partial or total) is minimal. Some administrative cost is OK, but penalties for prepayment are not done. When you have surplus funds, repay part of your loan and either reduce the EMI or the tenure. Also, based on your financial position, negotiation with the bank for flexible payments, temporary moratorium, balloon payment etc. Put the flexibility to good use.
Make part payments whenever possible
This is the key deal that one often fails to crack once enters into a home loan agreement with the lender. Your part payment always leads to reduction in principal payment which can lead to low tenure or low Emi, you can make a choice here. This is the most effective way to reduce home loan burden. Whatever you save post managing expenses and paying EMI save that and make part payments to reduce your home loan burden. Your EMI will not reduce the principal drastically it involves interest payment as well, however part payments will lead to reducing principal only.