How To Repayment Your Home Loan Wisely
Buying a home is a dream come true for many people, but it often involves taking out a home loan. While taking out a loan can help you achieve your dream of owning a home, it also comes with the responsibility of repaying the loan over a period of time. Here’s a guide to help you understand the basics of home loan repayment.
Choose the Right Repayment Plan
When you take out a home loan, you’ll need to choose a repayment plan that suits your budget and lifestyle. The two most common repayment plans are:
EMI: In this plan, you must pay a fixed monthly amount, including the principal and interest components. This plan is suitable if you have a fixed monthly income.
Flexible Repayment: This plan allows you to make partial prepayments and also gives you the option to increase or decrease your monthly instalments. This plan is suitable if you have a variable income.
If you have an increase in one EMI every year, your loan ends before time:
For Example:
Loan amount: 40,00,000
Rate of Interest: 8.5%
Loan Period: 25 years
In the above table, you can check that if only one EMI is paid extra in a year, your home loan is paid in 19 years, and approximately 14 lacs is reduced interest.
Keep Track of Your Repayments
Keeping track of your repayments is essential to ensure you get all payments, which can attract penalties and affect your credit score. Make sure you keep a record of all your loan documents, repayment schedules, and payment receipts.
Make Prepayments
If you have some extra funds, consider making prepayments toward your home loan. This can reduce the overall interest paid on your loan and also reduce your loan tenure. However, some banks may charge a prepayment penalty, so check with your banks before making any prepayments.
Let’s discuss this case with one example: if you have an extra receiver bonus of another income of 1 lac every year, you can pay prepayment for your home loan and reduce interest and loan period.
For Example:
Loan amount: 40,00,000
Rate of Interest: 8.5%
Loan Period: 25 years
The above table shows that if only one EMI is paid extra in a year, your home loan is paid in 15 years, and approximately 26 lacs is reduced interest.
Consider Refinancing
If your current home loan interest rate is too high, consider refinancing your loan. Refinancing involves taking out a new loan to pay off your existing loan. This can help you get a lower interest rate and reduce monthly instalments.
Don’t Default on Your Repayments
Defaulting on your loan repayments can have serious consequences, such as legal action, asset seizure, and a negative impact on your credit score. If you’re facing financial difficulties, talk to your lender and try to work out a repayment plan that suits your current financial situation.
Interest-Free Loan
If you have started monthly SIP on a Matutal fund of 12% of your EMI amount, then you have seen the total interest on your hand at the end of your home loan period.
Understand with one more example so you have a clear idea of how it works and how to get an interest-free loan.
For Example:
Loan amount: 40,00,000
Rate of Interest: 8.5%
Loan Period: 25 years
Monthly EMI: 32,209
Let’s calculate SIP monthly EMI is 32,209; 12% of monthly EMI is Aproxx 3,800
Assume A Equity Mutual Fund returns 12% Interest in 25 years.
In the above table, check. In your mind, click if the 72 lacs I have received at the end of 25 years is more than the total interest.
You are right, but if you have received a loan team investment, you can pay 20% tax on the total estimated interest received so that your total value is 59 Lcs at the end of 25 years.
In conclusion, repaying a home loan requires discipline and planning. By choosing the right repayment plan, keeping track of your repayments, making prepayments, considering refinancing, and avoiding defaulting, you can repay your home loan and become a proud homeowner.
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