A home loan is an essential solution to buy the house of your dreams. Relatively low interest rates, longer terms, and attractive offers make it a popular vehicle to finance your real estate purchase.
But when it comes to paying off your home loan, you need to be smart about your monthly loan expenses. If not well planned, mortgage payments (monthly equivalent or IME), can put undue pressure on your monthly budget and increase the cost of your loan. If you plan to benefit from a mortgage loan or you’ve already taken one, consider these simple tips to reduce the burden of NDEs.
1. Make a higher down payment
Financial institutions finance up to 70% -75% of the current market value of a property in the form of a home loan, with the remainder to be borne by borrowers in the form of a down payment. This value that a lender finances is called the loan-to-value ratio (LTV).
Typically, a higher down payment means a lower loan principal, which effectively reduces the IME’s monthly expenses. Additionally, your mortgage eligibility will instantly increase if you apply for a loan with a lower LTV, as the risk of borrower default is significantly reduced.
2. Negotiate the terms with the lender
Lenders value responsible borrowing behavior. So if you’ve already made on-time repayments and have a CIBIL score of 750 or more (preferably close to 800), you’re likely to get better deals with lower interest rates.
Otherwise, you can negotiate the terms of service with your lender, as long as you have maintained a good relationship with those responsible. Additionally, keep an eye out for special offers from lenders to existing customers.
3. Plan a long stay with partial prepayment
Typically, a longer tenor directly equates to a lower monthly EMI, although the total amount of interest paid to the lender is higher. Before taking out long-term credit, assess your upcoming debts and prepare a prepayment plan accordingly.
Plan to make partial prepayments based on your affordability every 3-4 years and readjust the loan term. This way, past EMI payments will be lower, and you can later adjust the monthly expenses based on your disposable income. A EMI mortgage calculator should help you plan repayment and reduce monthly monetary stress.
4. Share the burden of the EMI with a co-borrower
If the monthly expense is likely to put a strain on your finances, consider applying for a joint home loan.
In the event that the borrowers are co-owners of the property, the income of the two co-applicants is taken into account when determining eligibility for the mortgage. In addition, in some states, female co-borrowers may benefit from stamp duty concessions eligible for tax deductions under the Information Technology Act. Additionally, some lenders may offer reduced interest rates in the case of female co-owners.
The leading housing finance companies (HFCs) help speed up the loan application process by providing personalized pre-approved offers that require minimal documentation for approval. These offers can be claimed on products like home loans and home loans. You can verify your pre-approved offer by entering a few essential details like name and contact details.
5. Consider changing your lender
If you think the current interest rate charged by the financial institution is more onerous, you may want to consider a mortgage balance transfer. Interest rates are at an all time low, so by transferring the remaining principal to another lender at a favorable interest rate, you may be able to save a significant amount over time.
Refinancing a home loan can be extremely beneficial in the early stages when the interest component is greater than the principal amount of the EMI.
However, before you make the switch, carefully compare the interest rates and calculate how much the difference affects your monthly EMI repayments. This will allow you to reap the benefits of calculating EMIs before taking out a loan.
An additional tip to maximize savings: claim IT deductions under the new regime
The 2021 Union budget saw the Minister of Finance extend tax exemptions on term loans that can be claimed in a fiscal year under Section 80EEA of the Income Tax Act. This Rs.1.5 lakh deduction can be claimed above the Rs.2 lakh deduction under section 24B of this law under certain conditions.
Therefore, you can claim a total of Rs 3.5 lakh in RTI per fiscal year which should help to significantly reduce the financial pressure on a long term line of credit. Make sure you are. fully conversant with tax saving methods when taking out a home loan.
As a potential buyer, a wise decision on your part will be to explore the market and compare the mortgage interest rates charged by various lenders. Proper financial planning up front will prevent you from making a costly mistake and you can enjoy special benefits in the market without stressing your monthly finances.
Lenders such as Bajaj Housing Finance Limited offer home loans at attractive interest rates starting at 6.80% *, which can be repaid over longer terms. With facilities like a digital sanction letter and an easy recharge facility, consider the home finance company if you’re looking to meet your home finance needs.