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Repaying Home Loans Emis? Follow These Smart Tips to Manage It

by TeamDF
Repaying Home Loans Emis? Follow These Smart Tips to Manage It

The largest financial commitment that most of us borrowers will ever make in life, is a home loan, right? This is because home loans in all likelihood require a sizable financial commitment and have repayment durations of 15 to 25-30 years. 

And not to forget, naturally the EMIs are substantial too, and they have a big impact on monthly budget of the borrower. As a result, those who have a home loan always look for ways to reduce their entire debt and EMIs.

So here are some tips to assist you effectively manage your housing loan repayment and pay the least amount of total cost as interest.

Go for Balance Transfer

Firstly, you can transfer the whole balance of your housing loan to a new lender who provides better terms and a lower interest rate by selecting a balance transfer option. You may select this option if your present lender refuses your request to change the loan’s conditions or lower the interest rate.

Existing HFC and NBFC borrowers have the option of refinancing their debt with banks in order to benefit from PNB MCLR Rate-based pricing.

After the RBI ordered banks to issue new house loans (of a floating rate by attaching them to an external benchmark), current homeowners have the choice to switch from the old base rate or Axis Bank MCLR Rate to these regimes. If you want to learn more, it’s crucial to question your current mortgage lender about your eligibility. Don’t forget to inquire about any applicable costs, the procedure, and your prospects of switching.

Reduce the Interest Rate on the Loan (for Nbfcs and Hfcs)

NBFCs and HFCs use PLR rather than the RBI’s MCLR strategy (such as that of Axis Bank MCLR Rate) for making loan decisions (Prime lending rate). However, the current borrowers of these can reduce their interest payments by resetting the rate on their mortgage by paying a conversion fee, which is a tiny fraction of the outstanding loan balances. It varies among various banks and lenders. Choose this option only if refinancing your mortgage would save you a significant amount of money once conversion expenses are subtracted from the savings.

Prepay in Full or in Part 

When borrowers have additional money in  hand, such as from bonuses or the maturity of an investment like FD or PPF, they can opt to prepay all or a portion of their outstanding home loan amount. While RBI guidelines prohibit lenders from levying fee/penalty in situations involving variable/floating interest rates, they are permitted to do so in those involving fixed home loan rates. So, before prepaying, make sure the prepayment fees are known to you.

Go ahead to prepay only if you are convinced that any fees, if present, does not defeat your purpose of prepaying, i.e. to save interest.

Also make sure that the prepayment decision won’t have an influence on your emergency fund, long-term financial goals, or ability to obtain another loan if needed. If the returns/earnings on your present investments, such as fixed deposits, are not connected to any particular goals, you can redeem them to pay off your loan sooner. Additionally, refrain from using funds set aside for particular long-term goals to pay off your commitments early.

Swtich/change to the Pnb Mclr Rate 

if you are still utilising the old base rate. In response to multiple complaints from borrowers and assertions that banks and other lenders were neglecting current borrowers while decreasing interest rates, the Reserve Bank of India (RBI) adopted the concept of Axis Bank MCLR Rate based lending rates as of April 1, 2016. Borrowers of loans disbursed up until March 31, 2016, have the choice to switch to MCLR with a minimal switching cost, if applicable. They have the option of keeping paying the base rate. This is true even though MCLR rates serve as the foundation for all newly issued bank loans.

The PNB MCLR Rate more accurately and directly reflects changes in policy rates than the base rate and BPLR method since the repo rate is also taken into account. Unlike other rate plans, the Axis Bank MCLR Rate allows borrowers to take advantage of rate decreases that the RBI has announced.

Therefore, if the final interest rate provided is lower and the additional fees related to the transfer do not outweigh the benefits, moving your loan to PNB MCLR Rate is an option.

The principle and interest portions of housing loans are both subject to a double tax benefits under the Income Tax Act for borrowers. Under Sections 24 and 80C, borrowers may avail deduction of up to Rs. 2 lakh in interest payments and up to Rs. 1.5 lakh in the principle payment of a home loan. 

Also keep in mind that the benefits of Section 80C will not apply if the borrower sells the house before the five-year term starting from the date of ownership expires. The total claim cannot exceed the total principal returned over the course of the year if the co-borrower of a shared housing loan is also a co-owner of the property. Each partner may on occasion be entitled to a separate deduction for the interest and principal payments made during the year, depending on their individual ownership interests in the real estate.

Pay higher EMIs: Many borrowers choose for longer loan terms to reduce the size of their monthly EMIs, even though their EMIs are fair to be serviced in accordance with their home loan eligibility for a shorter tenure. Longer loan periods result in larger interest payments, which is the exact reverse of what is intended when it comes to loans. No more than 40% of your gross monthly income should go toward your mortgage.

When possible, you should try to pay larger EMIs in accordance with your home loan eligibility in addition to the standard EMI amount in order to lower your interest payment, which will then lower the amount of principal still owed. If you increase your EMI payment by a specific percentage each year, your loan will be repaid faster and with less interest.

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