Home Loan

Every person’s dream is to own a home. Home loan by many lenders makes it possible for an individual to own a home, based on their budget. Every individual who wishes to purchase a home would apply for a home loan with their trusted lender based on their income. Once they plan to take a home loan, they need to be aware of the EMI they are liable to pay. You can be well-prepared for the EMI, using the home loan EMI calculator. This will give you an insight into the amount that you need to pay towards your home loan.

As you are aware that having a housing loan is indeed a long-term commitment and mostly requires that you spend a big amount to pay the borrowed amount. You may wish to repay the loan earlier rather than taking it to the entire loan tenure to get the freedom from this financial stress. Over the past years, many financial institutions charged a prepayment penalty if you wish to repay a loan. 

Having discussed that a home loan is a wonderful method to own dream home, it also has tax benefits under the Income-tax Act, 1961. You can decide whether you want to prepay your loan amount or take the tax advantage. But, if you wish to repay the borrowed earlier, you should make a sensible financial plan. Here are a few tips on how to repay the home loan faster.

  • Increase the amount for monthly installment – Most of the financial institutions limit the EMIs on your home loan to about 40 % to 50 % of your income during the approval time. But as your income increases, the ratio of your EMI decreases as the EMI would remain constant while your income is high. For repaying the loan amount early to the due date, it is suggested that you repay your home loan faster. Maintaining a financial discipline will help you to repay the loan amount early before the due date.
  • Utilizing the additional income smartly – It is quite common for every individual to get an annual bonus from their workplace. Having a close watch on the amount you get as a bonus and instead of having some other plan for that amount, you can partially make use of it to repay your remaining loan amount. This would help you to reduce the home loan repayment tenure and is also useful to decrease the total interest paid on the borrowed amount. Also, you may face a dilemma when you get a bonus as to whether you need to invest or to pay the partial prepayment on your home loan. Most of the financial experts suggest that you invest these amounts based on the rate of returns expected. Meaning that in case the investment gives you returns that are more than the interest rate on your home loan, it would be wiser to invest. But, in case your loan interest rate exceeds the investment return, it is ideal that you make a partial payment to reduce your financial stress.
  • Suitable time to prepay your loan –Once you get the home loan initially, a big amount of the EMI would comprise the interest payment. Only a small EMI amount is used on the principal repayment. But, as the loan period gets nearer, a big amount of the EMI is used on the principal repayment. Hence, if you wish to prepay the home loan, you need to do it initially. This would help to decrease the total interest that you keep paying on the loan amount. But, it also essential that you perform an exhaustive cost-benefit analysis to find the precise savings that you can enjoy while you prepay the loan at the initial stage. Here, savings do not just mean to invest and earn investment returns. Interest costs reduction also indicates long-term savings. Even though repaying the loan at the initial stage is useful, you should also hold some amount of money to meet any unforeseen situations like losing your job or medical emergency. So, you need to plan your repayment time as per your feasible time and in a way that would reduce your financial stress.

Conclusion

Taking a home loan from a lender is highly beneficial to you to purchase a home. But before going to this, you need to analyze it from all angles of your financial conditions and keep a tap on your home loan EMI calculator.