Things to keep in mind while planning your Housing loan EMI

Jan 30 2014, 16:43 IST
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Many borrowers seldom see home loan statements and thus are unaware of huge interest component they are paying. Many borrowers seldom see home loan statements and thus are unaware of huge interest component they are paying.
SummaryRemember that banks grant you loan based on net take home pay, and not based on what you save.

you good returns over the long term. Since an ideal investment in mutual fund should be more than 5 years, you can continue investing in the fund for more than 5 years and then use that money to prepay the principal. It can be a smart option since here you can expect to earn 12 to 15 per cent tax-free returns. This can be in addition to prepayment amount to be shelled out each year as mentioned in point 1. You can also have a look at balanced funds for this purpose.

4. Look at your home loan yearly statement

This statement will give you an idea as to how much amount of your monthly EMI is going towards the principal component and how much is the interest component. Many borrowers seldom see home loan statements and thus are unaware of huge interest component they are paying.

5. Keeping an emergency fund

This is the basic rule of financial planning. Make sure you build up an emergency fund of 4 to 8 months so as to take care of any unforeseen expenses. It will also help you not to shell out funds you are saving for prepayment of the home loan. In nutshell, you need to ensure you have enough liquid savings to handle emergencies such as unexpected medical expenses.

6. Plan your EMI with life partner

If both you and your spouse are working, then there it be income credits in both your salary accounts. Discuss and take a joint decision in advance on the expense heads which will be debited from your account and your spouse’s account. When you have different accounts for tracking different expenses, it becomes more disciplined and easier to control expenses. This will also allow you to track patterns of your expenses on the same head in different months.

7. Do remember that Home loan prepayment penalty is removed by most of banks

Do remember, some time back RBI had indicated that banks would be required to scrap prepayment penalties. The charges are waived off on prepayment charges for all customers apart from some minimal charges. If your loan has the flexibility to allow increased regular repayments and lump sum repayments without penalty, take advantage of it whenever you can.

Summary

Do remember, saving on the net interest is the most significant advantage of prepaying the home loan, other than the fact that you will retain the complete ownership of the house

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