Published: Aug 16, 2022, 1:01pm
Managing your house loan EMI properly is essential to ensuring that it does not disrupt the rest of your finances. Regardless of whether you are in the market for a new house or making this choice as an investment, a house purchase demands severe preparation and saving. Hence, it is important for you to figure out the equated monthly installment (EMI) you will have to pay each month throughout the course of the house loan’s term so that you can budget accordingly.
Here’s a guide on how to make your monthly payments on your home loan without any problems.
A home loan or a mortgage is the most frequent and often recommended kind of financing to acquire or purchase real estate. The property is an asset that serves as collateral for the loan, making this kind of debt secured. In most cases, loan rates are more reasonable. The loan term may range from three to thirty years, and the interest rate is set for the lender’s (often the bank’s) benefit.
Until the bank is paid back in full, the borrower has no legal standing to obtain the property’s title. In addition, housing loans provide buyers with additional flexibility when making a down payment for a home or other real estate. For the duration of the mortgage, the lender will maintain legal ownership. If the borrower cannot keep up with the mortgage payments, the lender may foreclose on the property.
In this situation, the bank is the lender and needs interest payments on the loan for a certain period. In most cases, the amount paid remains constant from one month to the next. The mechanics of getting a mortgage are the same regardless of the interest rate structure you choose with. Paying out more of the principal rather than just the interest on a home loan might lead to lower monthly payments and a smaller principal balance at the end of the loan term.
When used wisely, a loan has the potential to make all your goals a reality. And a house loan is a tool that helps countless people achieve a major life goal like home ownership. Although many of us need a mortgage, others are self-sufficient and can purchase a house outright. They often have to decide whether to use all of their funds to buy a home outright and avoid going into debt or whether to take out a loan to finance the transaction. There is no universally applicable solution to this problem.
However, there is more than just a need for immediate cash regarding why folks need housing loans. Several perks associated with this financing option should appeal to anyone who wants to buy a house. A house loan often has a lower interest rate than other types. Home loans with variable interest rates are unique because they do not include a prepayment penalty. So, taking out a loan does have its benefits.
Before approving credit, banks do extensive due diligence, greatly lowering your risk. Before authorizing a project loan, they ensure everything is in order, including the title and any necessary legal permissions. Consequently, the project is more secure when financed by a bank once it has been pre-approved.
Considering the current average home price, a loan is often the only viable option for achieving homeownership. However, mortgages with longer terms are becoming accessible. Lower monthly payments may be possible with today’s 30-year mortgages despite the longer term.
Home loan interest rates are often lower than those offered by other lenders. Home loans are available from a wide range of lenders, and they may be either fixed-rate, tracker, or reduced. A loan out there will work for your unique situation and yet be within your budget.
The government has implemented numerous programs to lower the cost of obtaining a home loan in recent years. For example, shared ownership may make home buying possible even in high-priced regions.
Home loans are paid back gradually over time, usually monthly. Depending on the interest rate, the payments may be considerably more affordable than the local rent.
In accepting a home loan, you agree to repay a sizable sum of money plus interest within a certain time frame. Paying it back will cost you more than the original loan amount, even after 25 years.
Since a mortgage is a loan secured by your house, defaulting on your payments might result in the loss of your property.
Valuation fees, remortgage fees, and conveyancing expenses may add up to a significant sum on top of the interest you pay.
This might be beneficial since they can also go down, but it could also result in spending more than you had budgeted.
Your home will be seized if the owner defaults on the house payments. Suppose you find yourself unable to maintain your current mortgage payment schedule. In that case, you must contact your lender immediately. You might lose your house if they can’t get you out of it.
Making and sticking to a budget is the first step in responsible home and financial management. Look first at the monthly income that your family receives. The next step is to calculate how much you’ll need to put away each month for payments. If money is already tight, you may have to make some adjustments. To achieve this, consider eliminating some of your regular but unnecessary expenditures.
Debt may either be beneficial or detrimental. For example, a home loan is an example of a good debt since it allows you to purchase a house or an investment property that, with any luck, can increase your wealth in the future. Borrowing money for things that don’t improve your financial situation or quality of life is an example of bad debt. Examples include using your credit card to buy things you didn’t really need or that you could have waited to save up for.
Eliminating bad debts must be a top priority. Once you’ve paid off your debt, you’ll have more money toward paying back your loan and saving for retirement and your kids’ college tuition.
Paying off your mortgage faster than the minimum required would be ideal if you want to minimize your debt load. Paying even INR 10,000 more than you have to each month might shorten the length of your mortgage by many months, if not years.
Be cautious, however, that your loan terms don’t penalize you for paying off your loan early. This is more common with loans with an adjustable interest rate than with loans with a fixed interest rate. You should inquire about this with your bank before moving further.
Setting up a direct debit for your mortgage payment is a great way to maintain financial discipline and ensure that your payments are always made on time. To avoid the lender’s late fee, which may be rather high, even if you have the funds available to complete the repayment, setting up a direct debit is a good option.
Select a date that works best for you when setting up your direct debit. If you are paid on Tuesdays, then it could be the best day to have the payback deducted. Direct debits have been set up for your convenience to facilitate your life.
This is crucial if you want to avoid paying late penalties on your mortgage, which may add hundreds of dollars to your total debt. If you think you may have trouble paying your payments on time, you should contact your lender immediately. To avoid fees in the future, they may be able to offer you other solutions (such as extended payment periods in return for cheaper interest rates).
Do you remember the last time you looked through your mortgage agreement? Lenders increasingly provide better bargains for homeowners, including those with existing house loans, due to low-interest record rates and pressure from regulators to encourage owner-occupier home loans.
Don’t assume you’re getting the best rate on your mortgage because you haven’t looked at your loan documents in a decade.
To successfully manage your loan, you must also master the art of financial management. Take out what you can comfortably repay, and make every effort to eliminate your mortgage and other obligations as quickly as possible.
Also, the “own funds vs. house loan” conundrum has no simple solution. You should only use your own money to purchase a house if you are certain that doing so won’t prevent you from reaching your other major financial plans and that you will still have sufficient liquid assets after paying the down payment. Even for individuals who aren’t confident in managing long-term debt, this may be a workable solution.
Rachit Chawla is the founder and CEO of Finway FSC. In the last decade, he has worked across financial sectors including stock broking, lending, wealth management, and investment advisory. Rachit is a SEBI-registered investment advisor, a certified investment advisor from the National Institute of Securities Markets and holds a Insurance Regulatory and Development Authority (IRDAI) license. He graduated from Aston University, Birmingham, UK.
Aashika is the India Editor for Forbes Advisor. Her 15-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.
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