How You Can Maximise The Benefits Of A Home Loan
Looking for ways to maximize the benefits of a home loan? This post will help guide you through the tips that help you learn how to optimize your home loan and save thousands throughout your tenure.
Why is effectively managing a home loan important?
Effectively managing a home loan isn’t only beneficial in terms of saving costs, but more importantly, it ensures good financial health, better prospects in the future, and less stress in general.
To avoid financial stress, it is essential to learn how to effectively manage your home loan as it directly impacts your ability to save or invest elsewhere and an effective management system streamlines the process.
This includes maximizing tax benefits and lowering tax liability, maintaining a healthy cash flow, and more efficient planning of finances. To improve financial stability and boost your savings, learning to maximize your benefits from a home loan is essential.
- Choosing the right tenure
Weigh the pros and cons while longer tenure reduces monthly EMIs it increases the total interest payable. Short tenures have higher EMIs but lower home loan rates. So weigh the considerations and choose based on your financial goals and future goals.
- Larger down payments
A higher down payment of the loan does not just reduce the amount but also decreases the burden of hefty interest over time. Aim to pay at least 20% or more as per your financial considerations.
- Opting for prepayment
Use bonuses, raises, or gains from other investments to make prepayments. An early reduction of your principal significantly cuts down on interest during the initial years of borrowing your loan and reduces total interest outlay
- Negotiate Interest Rates
A stable income and a healthy credit score can help you negotiate down to lower interest rates or explore other options.
- Maximizing tax benefits
Tax efficiency is important when it comes to getting and maintaining the efficacy of home loan management.
A home loan is one of the biggest financial commitments one will make in life and to ensure more efficient planning of finances, one must learn to take advantage of tax deductions like deductions available on principal repayment (under section 80 C) and interest payment ( under 24 B) of the Income Tax Act to reduce the burden of tax.
In the case of a joint loan, each borrower can avail of the tax benefit for interest on housing loans to the extent of Rs 2 lacs and for repayment of the principal under Section 80C to the extent of Rs 1.5 lacs in their returns. To claim this benefit, they must also be co-owners of the property that has been mortgaged.
- Top-up loans
After you have made a substantial payment towards your home loan, you can apply for a top-up loan. Such loans attract a lower rate of interest in comparison to personal loans. These can be taken for renovations, schooling, or for personal use.
- Refinancing or Balance transfer
Evaluate your loan conditions from time to time and if market rates fall, consider having your debt refinanced or transferred to another lender who has lower lending rates or better terms.
Get two to three balance transfer loan provider quotes before you go for one because there are usually processing fees or other extra expenses like legal processing and property valuation.
- Automated EMIs
Work on setting up Automatic payment systems to minimize the risk of any resulting non-payment as it directly impacts credit scores and leads to possible penalties.
- Monitoring the loan terms regularly
Watch out for interest rate changes and other loan products offered in the financial market. When it’s appropriate, renegotiate terms like in case of a change in interest rate to the loan in a manner that benefits you, so keep a close eye and approach your lender and request for changes.
Final Overview
Home loans that are not properly managed run the risk of late payments, costs, and even losing the borrower’s house due to mortgage default which threatens both the borrower’s property and financial stability.
It is always reassuring to know that there is a sensible strategy to reduce debt, particularly for individuals who may be finding their liabilities to be exhausting. It gives the assurance that there are other monetary objectives or personal situations that can be concentrated on as the loan is being well managed.
