20 SEPTEMBER, 2022

The real estate sector in India is booming with every passing day. The sector is expected to reach 1 trillion dollars by 2030 and contribute 13% to the nation's GDP. With the increasing population and real estate pricing, it's no wonder why availing of home loans has become so common.

But with it comes the challenges of managing a housing loan and repaying it on time without negatively impacting the credit score. Here are some ways to manage home loans without any hitch.

1. Count On Lump Sum Part Payments

Opting for lump sum payments is one of the best ways to manage a home loan. They help lower the loan tenure considerably, especially the one paid during the early stages of your loan when the principal amount is high. Use maturity proceeds or festival bonuses to make partial prepayments for effective home loan management.

Most lenders allow part-prepayments after the completion of one year. You can redeem this opportunity to use windfall gains and divert spare funds towards loan repayment.

2. Scour the Lowest Rate of Interest

Switching to cheaper interest rates to pay a home loan will allow you to save a few years of your total loan period. Before opting for a home loan, do market research and settle for the bank that offers the cheapest rate on your loan so that paying home EMIs doesn't feel challenging.

3. Pay a High EMI

Choosing to pay a high EMI is key to managing home finances in a better way. This will not only reduce the loan tenure and the total interest you have to pay but also take the edge off the financial burden.

Consult your home finance manager or banking financial management company to calculate and plan your EMIs accordingly.

4. Prioritise and Schedule

Your home loan management and paying the EMI on time should be your priority to enhance your credibility with your bank. Schedule the monthly payment before the due date using a calendar app to avoid a default due to insufficient funds.

5. Pay an Extra EMI Annually

Another best way to manage a home loan effectively is to pay an extra EMI every year. Apart from paying your fixed EMIs to pay the home loan, taking a step forward and making an extra EMI annually will be beneficial in the long run.

Since there is no prepayment charge for floating rate term loans, it can help you lower the steep principal amount. If you are a novice, you can consult a home finance manager or banking financial management company to help you.

6. Use an EMI Calculator

One of the best ways to manage a home loan effectively is by using a housing loan EMI calculator. This tool will provide accurate insights into EMI payments, interest rates, etc., based on your income, expenses, and other factors so that you can use a suitable home loan scheme. It makes the calculation easier and more accurate by avoiding manual effort. The tool also allows comparison between different loan amounts, tenures and interest rates which can help you make wise decisions like choosing the suitable tenure for your home loan.

Not just this! Home loan EMI calculators will provide accurate insights into EMI payments, interest rates, etc., based on your income, expenses, and other factors so that you can use a suitable home loan scheme.

7. Do Not Miss the EMIs

Managing home finances can get tricky if you are dealing with multiple EMIs such as a home loan, car loan, credit card, etc. You should never miss out on your home EMIs since missing a single EMI payment can reduce your credit score and engender significant penal charges.

We recommend setting the EMIs on auto-debit from your account so you never miss them. Ensure you have sufficient funds in the bank every month or deposit them at least three days before the debit date to avoid EMI bounces.

8. Manage Your Finances and Investments

Once your home loan repayment starts, you need to begin planning your finances wisely. Try to reduce your expenses and avoid unnecessary spending. Pool your funds together and pay for your monthly expenses from this pool of funds.

If you think you can't manage multiple EMIs, do not apply for any new loans. Also, restructure your investments for effective financial management. Analyse your portfolio and identify the assets that are not giving you good returns.

Remember: your return on investment(s) should be higher than the interest rate on your home loan. If that is not the case, liquidate those investments and use them as your home loan part prepayments.

9. Keep Credit Score in a Good Condition

A good credit score is highly beneficial as it will help you get a better home loan deal with a bank with a lower interest rate. If you have a poor credit score, banks may either reject your home loan application or lend home loans at higher interest rates.

In other words, your credit score directly affects your home loan interest rate. So, ensure it is in good condition before applying for a home loan.

Some ways to boost your credit score fast are increasing your credit limit, paying your pending credit balance, and monitoring your credit utilisation ratio. Also, make sure to check your credit report for errors and get negative entries that are paid off removed from it.

The Endnote

Once you've opted for a home loan under a reliable and effective scheme, home loan management can be a bit challenging. However, diligent planning and financing can help you efficiently manage your home loan EMIs. Calculate your monthly liabilities using a home loan calculator to understand the EMI and interest rates based on your current income.

You can then use windfall gains to reduce the interest outflow for prepayments and save on the interest cost. Also, make sure to choose a bank that offers you the lowest rate of interest. Lastly, schedule your monthly EMIs, so you do not miss out on them and lose credibility with your bank.

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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.

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.