For
majority of the public, no home can be bought without being assisted by a home
loan. This sure adds to your financial responsibility and is a long-term
commitment where backing out will come with its share of repercussions. Buying
a property in India is becoming one of the most sought after forms of NRI
investment in India. Home loan EMIs can cause outflow of a major portion of
your monthly income. In such scenario, many people opt for prepayment of home
loan. But this feature has its own pros and cons. Read the following to get
yourself equipped with important home loan prepayment tips:
1.
Using your savings wisely: House loan
is a lot convenient thanks to easy
accessibility and majority of the process being online. Home Loan Prepayment
Charge is extremely affordable and almost at par with what Indians at home pay.
But if you are planning to give out your entire savings towards closing a home
loan, think again. No doubt, home loan prepayment is a very good option but
giving out your saving may not be wise. If you do have some extra savings in
hand, sometimes investing it in other schemes with higher interest rates may
prove to be more beneficial than loan prepayment.
2.
Increasing EMI: In order to avail a house loan, many companies in India have a
minimum monthly income fixed to be eligible for the loan. If you are a salaried
employee and get a raise in your income or your monthly salary is upscaled, you
can ask your bank for an increase in the EMI. It will go a long way in helping
you with your prepayment charges for home loan. Banks generally fix an income
to EMI ratio. When you think of increasing your EMI, you should take this ratio
into serious consideration and not think of exceeding it.
3.
Smart Home loans: This is a new scheme featured by many financial institutions
for home loans in India. Even NRI home loans are eligible for this scheme. A
current account is provided to the customer associated with the housing loan.
The main advantage of such a scheme is that, the bank calculates the rate of
interest on the outstanding loan amount minus the balance in the current
account, thus lowering the EMI on the housing loan. Investing in such a scheme
gives you the security of using the current account balance during emergency as
well reap the benefit of low EMI. But this option is not very helpful if you
cannot maintain a sufficiently high balance in your current account.
4.
When to go for prepaying : The interest rate on the house loan is higher during
the initial part of the tenure whereas it goes on decreasing later. This is
common to both home loans as well as those for resident Indians. Gradually, as
interest component starts reducing, the principal component increases. So, if
you are planning to prepay your housing loan, it is much wiser to do so during
the initial part of the schedule. Prepaying during the later years of the home
loan tenure does not save much of your interest amount. Plus, it comes with the
insecurity of giving up your liquid finances.
5.
Loan takeover by another bank: This is another common strategy for affording prepayment charges on home loans. Companies offer to take over the outstanding NRI
Home loan at a lower interest rate or for a reduced tenure. This is a very safe
option as it does not hamper your savings yet decreases the interest rates.
But, the processing fees charged by the other bank can create a problem in this
case.
Gather
as much information before taking a step as huge as it is. It comes with
responsibility and going wrong may have legal aspects involved Keep alert for a
lot of fraud that occur both online and offline.
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