#homeloansonline

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For most of the home buyers, taking a home loan is the only option to fulfil their dream of owning a house. Read onto this Finance Buddha blog to know the Questions to ask yourself before you Apply for a Home Loan. 

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5 Tips for Managing Home Loan Repayment

A home loan is different from all other types of financing. It is the longest financial commitment that borrowers make. The EMIs (equal monthly installments) of a home loan in India usually last for a decade and more, hence it is considered the largest monthly expenditure for a majority of people.

 When a borrower secures a home loan, he/ she might be all set to make timely repayments; however, there might be some dark days when doing so becomes difficult.

 To glide through such circumstances smoothly, you must know how to manage your home loan EMIs and interest so that your burden can be reduced. Here are some tips:

 1. Shift to MCLR Based Home Loan Interest Rate

 Earlier, banks and other lenders were blamed for ignoring existing borrowers when slashing interest rates on loans. Then, from April 1, 2016, Reserve Bank of India (RBI) applied Marginal Cost Based Lending Rate (MCLR) and made the banks to shift to MCLR based rates.

 Now, banks lend all the new loans on MCLR based interest rates, which makes existing borrowers (who took home loans before March 31, 2016) eligible to switch over to MCLR.

 MCLR reflects the changes in interest rate policy better than BPLR and base rate methods as it's mandatory for banks to review their MCLR rate every month in MCLR regime and reset interest rates of their existing borrowers (at least once in a year) and communicate the interest rate reset date to them at the time of disbursing loan.

 Due to these features, MCLR based rate is considered more transparent than previous interest rate setting systems. As a smart borrower, you should consider switching to MCLR as interest rates are declining currently. Doing this will help you gain benefit from any rate cuts in future, hence, resulting in a reduction in the EMI amount.

 2. Convert Your Home Loan to Lower Interest Rate

 NBFCs and HFCs are not included under the MCLR system by RBI. However, they offer a special feature to their existing borrowers to reduce the interest rate. For that, borrowers have to pay a conversion fee (which may go up to 1% of their outstanding principal).

 3. Consider Prepayment of Loan if You Can Afford

If you suddenly have enough money to prepay your outstanding loan, you can consider prepaying a part or entire outstanding home loan. Although lenders are barred from charging prepayment penalties on homes loans with floating rate, they can charge up to 2% prepayment penalty (of the outstanding due amount) on fixed rate home loan.

 Make sure you save higher interest cost than prepayment penalty. However, don't use your emergency funds, savings or investments which are generating a higher return than your home loan interest rate. Instead, opt for closing those deposits or securities which are generating a lower rate of returns.

 4. Increase EMIs

 If there is a significant rise in your monthly income due to increment, promotion or other reasons, you may opt for setting higher EMIs. Avoid paying\ EMIs beyond 40% of your net monthly income. By increasing your EMIs, you can save some interest cost in long run. Also, make sure you keep contributing to long-term investments.

 5. Opt for Balance Transfer

 Under home loan balance transfer option, borrowers can transfer their entire home loan balance amount to another lender. Doing this can help you get lower interest rate with better terms on a home loan. However, consider this option only if your existing lender doesn't offer a decrease in interest rate.