Almost everyone dreams of owning a home. Many people fulfil this desire by taking a home loan. In fact, most people purchase homes in India with the help of home loans and repay the loan over a long period. The repayment is generally done through equated monthly instalments (EMIs). The coronavirus crisis and the effects of it on the economy because of government-imposed lockdowns have disturbed the routine payment of home loan EMIs. The economic distress caused by the crisis has resulted in pay deductions as well as layoffs. For people affected by the COVID-19 pandemic, the Government of India came up with the loan moratorium with the purpose of offering some respite. However, this was available for a limited period. The concern of the home loan EMI payers continues because of the lingering crisis. In these challenging times, managing monthly instalments can be tricky. Below are some helpful tips on how to manage your monthly home loan EMI.
Use Savings Wisely
The declining interest rate has not only lowered the interest rate on home loan borrowed from banks or NBFCs, but it has also resulted in lesser interest you now earn on your savings. Many people can have their money lying in saving schemes like bank and post office fixed deposits. Paying a higher interest rate on home loan and earning insubstantial interest rate by investing in traditional saving schemes does not make for a good financial decision. Therefore, it is necessary to use your savings wisely. Consider the option of getting out of the savings and making a lump sum payment towards the home loan.
Extension of the Repayment Tenor
If you are unable to pay your EMIs, request your lender to increase the repayment period to bring down the monthly EMI amount. In the long run, this may cost you more to pay off the loan. However, considering your current financial situation, you can choose this option to bring yourself some relief. Also, after your personal finances improve, the choice of making a part-payment towards the loan is always available. By doing this, you can easily make up for the extension of loan tenor and bring down the interest amount you are expected to pay because of the home loan tenor extension.
Take Benefit of the Floating Interest Rate
Interest rates on all types of loans have declined. Lenders have passed on the interest rate cut benefit to their customers to a certain extent. However, this extension of reduced interest rate is not applicable on the loans borrowed on fixed interest rate. On all these loans, lenders continue to charge the higher interest rate, as per the old interest rate only. If you have borrowed money under the fixed interest rate regime, consult your lender and request your loan interest rate regime to be changed to the floating interest rate. Your lender may require you to pay a small fee . However, in comparison to the fixed interest rate, you would be better off to pick the floating interest rate.
Home Loan Balance Transfer
One of the easiest ways to manage your home loan EMI during this situation is to choose for the home loan balance transfer. Because of the economic slowdown, all kinds of loans in India have become cheaper, including home loans. Through home loan balance transfer, a cheaper home loan can be availed during these times. By availing this facility, you can get a new home loan from a new lender on a cheaper interest rate and pay off the existing home loan. The advantage of refinancing the current home loan may include a lower monthly instalment and a lower final interest amount on the home loan. However, before getting the home loan balance transfer done, carefully go through the pros and cons of this so that a financially prudent decision can be made to manage the home loan EMI well.
In recent years, availing of a home loan in India has become easier. To decide the home loan eligibility of applicants, lenders check the CIBIL score for home loan. By performing this basic check, lenders convince themselves about the repayment capability of the applicants. Not only the home loan, lenders may also check the CIBIL score of applicants before sanctioning other types of loans. Therefore, it is important to not default on the payment of home loan EMIs during this crisis too as failure to pay EMIs always results in low CIBIL score. In future, a healthy CIBIL score can be rewarding. As we wait for the economy to fully recover and achieve the size and growth of pre-Covid days, to keep financial worries at bay, smartly managing the monthly instalments has become crucial. While we deal with the current crisis, the future cannot be completely ignored. By adopting some of the important ways mentioned above, to a greater extent, finances can be managed in a better way.