14 NOVEMBER, 2019

Moving to your new house is definitely an exciting feeling. Thanks to easy access to home loans, many people are now able to fulfil their dream of having owning a house. The journey from knowing your housing loan eligibility to getting a loan to purchase a house is generally a long process. The main part starts after that because home loan repayment lasts for several years.

The amount of home loan is substantial, and so are its effect on your overall financial condition. That is why it is essential to manage your home loan EMIs so that they would not become a financial burden for you in future. Here are five useful tips for home loan management that will give you an idea about managing home loan EMIs effectively.

Managing Finances Smartly

When you are paying the EMIs of a home loan, you should concentrate on minimising your cash outflow. Thus, making a monthly budget should be the first step to manage finances smartly. Track all your expenses within a month and try to eliminate those, which you think are easily avoidable. You can direct this cash towards paying your home loan EMIs.

Making Bigger Down-Payments

There is a simple relation between down-payments and EMIs, the higher the down payments, the lower/lesser will be the home loan EMIs. When you have a significant amount as your saving, using it to pay the down payment on the loan is one of the most cost-effective options of home loan management. In order to obtain the amount you required to purchase a home, you need to pay the down-payment to the lender, which is usually 20% to 30% of the total cost of your house. If you choose to pay higher down-payment, it eventually reduces the total amount to be paid, which is EMIs.

Decreasing loan Tenure

Your EMIs consists of the interest and principal of your home loan. The interest on the home loan increases as you increase the tenure, however, home loan EMIs reduce simultaneously.
For example, Mr Kumar has taken a home loan Rs. 9 lakhs at the interest rate of 10%.

tenure

EMIs

Total Payable Interest

10 years

Rs. 11,894

Rs. 5,27,228

20 Years

Rs. 8,685

Rs. 11,84,447


Though the EMIs increase after reducing home loan tenure, it decreases the total payable interest. This eventually decreases your interest outgo and enables you to save a significant amount of money in the long-run. Besides, paying higher EMIs frees you early from the financial liability of home loan.

Paying an Extra EMI

If you have taken a home loan with a floating interest rate, you can pay an additional EMI every year of tenure to decrease the outstanding principal amount. Lending institutes do not charge any penalties towards such pre payments.

Transferring the Home Loan Balance to Another Lender

These days, lenders decrease their interest rates because of diversified interest rate reset periods. So, when you feel that your lender has provided you with a higher interest rate on a home loan, you can transfer the outstanding home loan balance to another lender providing lower interest rates. However, while opting for a home loan balance transfer you should also consider several other factors to make an informed decision.

With the help of these tips, managing your home loan will become easier.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.