Munir Kulavoor | Feb 11, 2014 | Integrafinserve.in
Smart financial decisions can reduce the total cost of a smart borrower’s home loan and enable paying off the balance faster. Decrease the total cost of the home by making extra payments or more frequent payments. A ‘line of credit home loan’ like SBI Max Gain used in combination with credit card can enable the borrower to minimize cost and get debt-free faster. Below mentioned money-saving strategies and tips will help you to minimize the cost of your home loan; some may require you to make extra payments, while others need you to make smart decisions with the money you already have. For best results you may use a combination of these approaches.
Pay more than the EMI
Paying extra money on your home loan will save you money over the tenor of the loan. Whether you pay an extra Rs.1000 or Rs.5000 each month, every bit counts. You can also credit incentives, cash gifts, dividends, rent receivables or tax refunds to your home loan account. In any case, paying extra money over and above EMI will help you reduce the amount of interest you owe and enable you to repay the loan rather quickly.
Make extra payments.
Paying an extra amount of few lakh of rupees each year or twice a year will drastically decrease the amount of interest paid over the tenor of the loan and help you pay off faster. If you receive an unanticipated financial payout, consider making an extra payment or two and save thousands in interest.
Pay more often.
This is the best way to save money on your home loan without coming up with additional income. You can save money by breaking your monthly EMI into multiple payments, check with your lender on this. Pay fortnightly instead of once a month, or make one-fourth of your payment each week, if it suits you. Making payments fortnightly is equivalent to paying an extra month payment each year. Just make sure that you make the first split payment ahead of the payment due date to avoid a shortfall else you’ll end up with an overdue on the account. This, in turn, may have an adverse impact on your credit information report.
Keep EMI unchanged, even if interest rates drop.
Most borrowers tend to decrease their EMI payments when interest rates drop. If you continue paying the same EMI, you will reduce the amount of interest you pay over the tenor of the loan and pay off the loan faster.
Consider balance transfer or switching lenders.
Through RBI notification dated June 5, 2012, it has been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis. Hence borrowers can sometimes save money by balance transfer of their loan with a different lender. However, you must always carefully evaluate the processing costs of balance transfer with the new lender in order to ensure that you save money. It is recommended that you consider changing over from a normal / term home loan to a line of credit home loan like SBI Max Gain to avail of the flexibilities it offers.
Use a credit card in conjunction with a line of credit home loan.
If you use a credit card with an interest free period to make purchases, you can credit the majority of income/salary to your line of credit home loan like SBI Max Gain (i.e. if you use this product). This will reduce the balance of your loan for the month, which in turn decreases the amount of money you are being charged interest on. Then, use the line of credit home loan to pay off the credit card in full. Using a credit card and a line of credit home loan in conjunction is known as “offset savings”.
Smart borrowers can radically decrease the cost of their home loan and get debt-free faster by following these money-saving tips. Some of these suggestions, such as making extra payments, require the borrower to have extra money to pay toward his or her home loan. However, borrowers can save money by making more frequent payments or use your credit card smartly. For maximum effect, combine different tips to save even more on your home loan by shaving off EMIs at the back-end!
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