Easy Ways to Manage Home Loan EMI

Considering a home loan application or already paying EMIs? In either case, planning your finances is crucial. Before applying for loans, assessing your repayment capacity is essential to ensure that EMIs align with your budget without causing any financial strain.

Several factors collectively influence how lenders or banks gauge your ability to repay. By carefully weighing these factors, you can avoid potential pitfalls in EMI planning during the home loan application process and make a more informed and financially sound decision. This blog talks about how we can efficiently manage our EMIs.

Methods to Manage Your Home Loan EMI

Pay all your Debts

A home loan falls under the category of beneficial debt as it helps acquire a house or investment property that would help increase future wealth. On the flip side, bad debt arises when money is borrowed for non-essential items, failing to improve one's financial standing or quality of life. An example is using a credit card for unnecessary purchases that could have been postponed or would be avoided. Prioritising the repayment of these debts is crucial.

Once these debts are settled, surplus funds become available for repaying loans and building savings for retirement or paying for your children's education. This strategic approach ensures financial freedom and stability, redirecting resources toward meaningful goals after overcoming unnecessary financial burdens.

Maintain a high credit score

Maintaining a good credit score is pivotal to reducing your home loan EMIs. Your creditworthiness, gauged by this score, significantly influences the terms of your home loan. A higher credit score positions you as a reliable and low-risk borrower, making you eligible for a home loan with favourable interest rates. Therefore, EMIs become more manageable, thereby reducing the borrowing costs.

Lenders or banks typically view a credit score of 750 or higher as ideal. The factors contributing to an individual credit score include your credit history, repayment habits, experience with various credit types, existing debt, and credit utilisation ratio. To enhance your credit score, adhere to timely repayments, maintain a favourable debt-to-income ratio, and limit your credit utilisation. These practices boost your creditworthiness while making your home loan terms more advantageous.

Choose the automatic withdrawal option for your loan

Opting for an auto debit to handle your loan payments is a smart move for maintaining financial discipline. This ensures timely payments, safeguarding you from hefty late fees, even when funds are available for repayment.

Moreover, when setting up for auto debit, always choose a date that aligns with your payday. For instance, if you receive your income on the 7th of every month, it makes sense to schedule the deduction after that, say the 10th. Auto debit options are designed for convenience, streamlining your life by automating payments and mitigating the risk of unnecessary fees, contributing to a hassle-free financial routine.

Avail of pre-approved personalised offer

Securing a pre-approved home loan offer has the potential to significantly lower your monthly loan installments. This offer is extended by lenders or banks after a thorough evaluation of your credit profile, establishing you as a low-risk borrower with commendable creditworthiness.

Consequently, you become eligible for a more favourable home loan rate. The direct impact of these reduced home loan interest rates in India is evident in the form of lower monthly instalments, offering a practical and immediate benefit to your financial commitments. Furthermore, it's a strategic move that streamlines the borrowing process and contributes to more manageable and cost-effective home loan repayments.

Separate loan and savings accounts

When you and your spouse are employed, income credits land in both salary accounts, creating a potential tracking challenge if all expenses flow through one account. In this case, make streamlining simpler by maintaining separate accounts for loan servicing and savings.

No doubt, the concept might seem intricate initially, but the advantages significantly outweigh any initial complexity. This approach ensures clarity in managing finances, making it easier to monitor transactions and facilitate a more organised and efficient financial system.

Go for some budgeting

Starting a budget and sticking to it is the first step to managing your finances wisely. Begin by assessing your family's monthly income. The subsequent phase involves calculating the required monthly allocations for payments. If finances are stretched, adjustments may be necessary. Think about cutting back on things you don't really need every month.

This strategic approach ensures a realistic financial framework, allowing you to prioritise essential payments while optimising your spending patterns for more sustainable and balanced financial management.

The Bottom Line

Effective home loan management requires mastering financial management. So, borrow when you can comfortably repay the loan amount and strive to eliminate mortgage and other obligations promptly.

Apart from that, opt for personal funds to buy a house only if it won't hinder major financial plans, leaving ample liquid assets post-down payment. Even for those uneasy about long-term debt, this approach can work. The key lies in ensuring that your housing decisions align with broader financial goals, thereby balancing your home loans and keeping your finances secure.