Although it is advisable to increase your EMI in order to reduce the tenure of your home loan, helping you to repay your loan more quickly, you still need to keep it at comfortably manageable levels to be on the safer side.
Why you may wonder why this is the case. A valid argument for you is, instead of paying a smaller EMI and facing a long loan tenure, I would rather save on the huge interest cost by managing to pay a higher EMI. The solution is to make prepayments. Read here how you can properly prepay to reduce your unpaid loan balance and thus save personal loan interest rate and also close your loan early! There is a solution out of both situations to get the best from.
You don't need to worry about the lengthy tenure as you can prepay amounts that are about 3-4 times your EMI on a regular basis like once a quarter or when your year-end bonus comes up. This will help you handle the loan efficiently and regularly carry down the unpaid amount of debt, as it will directly decrease the principal you owe to the bank. The only thing you need to bear in mind here is the prepayment fee, which some banks charge if your prepayment exceeds a certain amount. This could be between 1% and 3% of your outstanding loan amount, anywhere. In this case, a handy strategy is to periodically prepay within the limits set by the bank, which will significantly reduce your outstanding debt and help you close the loan early. On the other hand, if you plan to do so, you can always accept paying in bulk, given the prepayment charge if the saved interest is signed.
Here are a few reasons why you should be adopting this strategy for personal loans.
Ideally, banks offer loan amounts up to a threshold of about 50% of your income. This doesn't mean you should use all of the available limits. Holding EMI repayments within 30-40% of your budget will help you save almost 30%-50% of your profits. Experts in money management recommend that you try to save up to 60 per cent of your income to help you have sufficient funds to access when needed. Although a home is a fixed asset investment by itself, you 'd still need funds that can be liquidated at will, especially if you're a first-time home-buyer. The right kind of investments will help you reap rich long-term rewards and will ensure that you start early to save more by saving despite EMI repayments.
A long-term loan like a home loan is a recurring obligation that is a part of your budget. If you spend too much in it, you may not have sufficient funds to cover a vast list of other expenditures that continue to accumulate over time. For example. In a situation where two people have taken a joint loan, you need to make allowances for future expenses such as education expenses for children, emergency funds for a job loss or the loss of one income.
There may be interest rate spikes. Usually, banks will increase the loan tenure in such a scenario so as not to place the loan taker in a tight spot by increasing his EMI. If you can manage a slightly higher EMI in such a scenario you can ask the bank to increase it then.
On the other hand, if your income graph soars over time because it is expected to take place in normal circumstances where promotions and work changes take place, you can also select the prepaid path that allows you to prepay by preference rather than necessity. It's best not to commit to a higher sum that will cause a hole in your pocket, but rather to be the other way around where you can actually control your home loan repayment pattern.
A home loan is probably not the only debt that you may need to incur. You may end up taking a loan for your children's higher education, or a personal loan for some other purpose. Before banks sanction such loans your debt liability will be taken into consideration. At such a juncture, if need be, you will be able to leave sufficient room for one more loan. This could also enable you to long-term investment in a second home.
Last but not least, if any unpleasant event upsets the cart it is very easy to get overwhelmed. You should have contingency plans in place to avoid the overthrow of your finances like a house of cards that lead to undue stress and a constant frown on your brow. Your life is something you should enjoy and appreciate, so don't get caught in a debt web and ruin your fun.
Check the personal loan EMI calculator available on our website.
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