A home loan is a great way to get the desired funds for buying your dream home. Before you apply for a loan, you must be financially prudent to be able to repay the amount in full. Read on to know how to plan your finances smartly.
Applying for a home loan without smart financial planning is like shooting in the dark. You may face several obstacles with repayment, and in the worst-case scenario, you may not have enough funds to be able to repay the loan. Hence, it is paramount that you plan your finances well to manage your regular expenses and, at the same time, afford to repay the home loan EMIs consistently throughout the tenure.
Here are a few tips that you can consider:
- Assess your financial condition
Before you set out looking for the best lender, you must take your time to review your finances. Chart a clear plan about how you will manage the regular home expenses while repaying the EMI; assess your assets and liabilities and decide the maximum amount you can afford to borrow.
Evaluate if you have sufficient financial back-up in case of a contingency. Do you have adequate finances to pay the down payment? Assess your finances thoroughly and then take the next step.
- Pay higher down payment
When you apply for a home loan, the lender approves only 80% of the property value, and the remaining 20% must be paid from your pocket. This amount you pay is called down payment, and it must be paid upfront. So, if you have sufficient savings and can afford to pay more than the minimum requirement, you can pay a higher down payment.
This will help you apply for a lower loan amount, and subsequently, the EMIs will be more affordable. The other thing you can do is reduce the loan tenure. Whether it is lower EMI or tenure, you can save a significant amount in the long run.
- Transfer for your loan at a lower interest rate
Today, many home loan buyers tend to transfer their home loans from one lender to the other to benefit from the lower interest rate. The moving of a home loan is called ‘balance transfer.’ You can transfer the balance amount to the new lender and repay it at the revised (lower interest) rate. Even a small difference of 1% in the interest rate can help you save a significant amount.
Before you transfer the loan, please do your research well about the new lender and the various charges associated with it. If the lender charges a high processing fee, or levies other costs, the transfer may not be worth it. Do your calculations well before taking the final decision.
- Opt for partial prepayment
One of the best ways to reduce the home loan tenure and repayment obligation is to opt for partial repayment of the loan. It has several benefits. Firstly, today, most lenders do not charge any fees for prepayment. Secondly, you can prepay as less Rs. 10,000. If you are expecting to get any yearly bonus or a big payout from your investments, use it to prepay your home loan.
- Do your research about the lenders
When you search online for best home loan offers, you may come across several lucrative advertisements that promise to offer the loan at the best interest rate. But, never fall for such advertising gimmicks. Do your research well about the current home loan interest rates offered by different lenders and the various charges levied by them. Often, the lenders that have low-interest rates have multiple hidden charges.
Thus, making smart financial decisions can help you repay the home loan easily.