When you apply for a home loan, it is vital that you plan your finances well so that you can manage the repayment. You must ensure that you have sufficient resources to repay the EMI (equated monthly instalment) on time every month till the end of loan term. If you fail to repay even a single EMI or delay the payment even by a single day, it could have a significant impact on your financial credibility and you may lose valuable points on your credit score.
So, how to manage EMI payment on time? The following tips can help you.
One of the most effective ways to manage home loan EMI payments on time is to borrow responsibly. You must use an online EMI calculator to determine the exact EMI payable for the amount you want to borrow. If the EMI is high and does not fit your budget, it is better to borrow a lower amount or increase the repayment tenure.
Typically, the financial organisations in India offer home loans for a maximum of 30 years. This way you can reduce the EMI and repay the same without any hassles. However, you must know that the longer the repayment period, the higher the interest payout.
Use emergency fund
While many financial advisors around the world suggest not touching the emergency fund for regular EMI payments, if you find yourself in a tight situation where you are unable to pay the EMI due to loss of income, you can use your emergency fund. This will help you keep your financial credibility intact and you can avoid paying the late payment fees.
However, when you use the emergency funds for repaying home loan EMIs it is better to have a proper plan in place on how you will deposit the money you withdraw again so that you can maintain a robust emergency fund corpus at all times.
Use your annual bonus for repayment
If you think the regular home loan EMI payment is taking a toll on your long-term financial goals or you are not able to save enough for the future, it is advisable that you think about prepayment.
Over the years, as you grow old, your income may increase or you may receive a lump sum amount as annual bonus or dividends from your investments. You can use this amount to prepay the home loan principal amount and reduce the loan tenure. This way you can reduce your overall interest payment and repay the full loan faster.
The sooner you close the home loan account, the better. You can then use the amount for your other goals.
Consider home loan refinancing
Another effective way to manage the EMI payment is to transfer your home loan to a different lender that offers a loan at a lower rate. This is called home loan refinancing. When the home loan interest rates in India are lower, the EMI will automatically be more affordable and you can manage the payment easily.
Managing the home loan EMI repayment is not as challenging as it may seem. It just needs financial discipline and planning. Now that you know the tips, do your due diligence and repay the loan without any hassles.