In today’s world, buying a home of your own is a like achieving a great feat However, working around your monthly income to incorporate the home loan EMIs without taking a hit on your lifestyle is no easy feat, which is why most people opt for a home loan. Although there are a lot of home loan providers in the market, one has to take into consideration a number of factors before applying for financial assistance. This is because a home-loan is a significant financial commitment as there is a large capital involved and the time taken to repay it.
Typically, a home loan tenure lasts up to 10-20 years. This is a substantial period, considering the EMI (Equated Monthly Installments) that needs to be paid during this time. One needs to plan for job security or a sufficient source of funding for this period, in order to avoid any kind of financial burden during the loan repayment tenure. The biggest factor that comes into planning for a home loan is the total EMI amount. The Finserv Markets website offers an online home loan EMI calculator to estimate the total EMI amount applicable for your home loan.
However, one has to keep in mind certain important factors that impact the planning of your home loan EMI. Some of these factors include:
Revision in Interest Rates
Transfer of home loan from one loan provider to another
Certain banks and Non-Banking Financial Companies (NBFC) offer an option of both fixed as well as floating interest rates on their home loans. Any revision in these interest rates could either have a positive or a negative impact on your home loan EMI. This impact could especially be significant if you have opted for a floating rate of interest on your home loan. This is because, as opposed to a fixed interest rate, a floating interest rate could change on account of any policy change dictated by the RBI (Reserve Bank of India). In accordance with these changes, your EMI amount may change. However, floating interest rates are not always a bad option because floating rates do not levy any penalty with respect to pre-payment of the loan. Also, any change in interest rates by the RBI may not necessarily be on the higher side. Sometimes, these interest rates may scale down due to the RBI norms, thus significantly cutting down the total EMI amount.
Not many people are aware of this but you can actually change your home loan borrower, even after the loan has been granted. This is done via the ‘home loan balance transfer’ facility. Suppose you took a loan from an ‘X’ home loan provider but during the repayment tenure realized that a lender ‘Y’ offers EMI interest rates that are much more budget-friendly. In such a case, you can transfer your home loan to ‘Y’ to avail a lower interest rate benefit. However, while transferring your loan, make sure that you weigh all the factors pertaining to your EMI. Certain costs are involved when you transfer a loan from one lender to another. Make sure that in an effort to reduce your EMIs because of the affordable interest rates, you do not end up paying on the higher side with the transfer charges involved.
How you choose to repay your loan, significantly affects the EMI. Apart from the traditional mode of repayment, you can also choose to either prepay your loan or use a Step-up or Step-Down approach to repay the loan amount. All these modes of repayment can significantly impact your EMI. Let us discuss them in detail:
Prepayment of loan involves repaying a large portion of your loan amount before the decided tenure. This significantly cuts down the principal loan amount to be paid and, in turn, brings down your EMI. However, certain home loan lenders charge a prepayment penalty that usually amounts to 1-5% of the outstanding principal. There might also be some other legal clauses involved with the prepayment of the loan, as per the policies stated by the money lenders. Make sure you read through all these clauses and only then make an informed decision of whether you want to proceed with home loan prepayment.
The step-up repayment option is more popular with borrowers who have just started with their careers. Courtesy to this option, the lenders grant the Home Loan at lower EMIs at the starting of the loan tenure, eventually increasing the amount as the tenure progresses. This is done with the hope, that as the year progresses, the borrower will experience significant financial growth in his career and afford the higher EMIs.
While step-up repayment is popular with the younger generation, the Step-Down Repayment option enjoys a high demand with people nearing retirement. In this mode of repayment, the total EMI amount is kept high at the start of the repayment tenure and gradually decreased as the tenure period progresses. This way, even when you are nearing retirement, you do not feel any stress for repaying your home loan, offering much financial relief.
As is apparent from the points mentioned above, there are a lot of factors that need to be taken into consideration while managing your home loan EMIs. It is only after carefully weighing all the pros and cons of the above-mentioned parameters that one should proceed to avail a home loan. A little planning in the initial stage could definitely go a long way in impacting your total home loan EMI amount. To learn more about Bajaj Finserv home loan EMI options, visit Finserv Markets today!
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