Home loans are undoubtedly one of the best ways to finance one's home purchase but one should also remember the fact about repayment when it comes to getting a loan. It is advisable to pay off the loan as soon as possible because the longer you put it off, the greater interest you incur for it and the loan becomes costlier in the process.
According to RBI Guidelines for Home Loan if the loan is not paid on time and you keep missing the payments, then their circular on foreclosure charges on loan against property would be applicable and the property would be taken over by the bank. Here are five points to remember in this regard.
- As any home loan guide would tell you, the best way to reduce the loan is to pay higher EMIs. In the initial phase, much of the EMI is comprised of the interest and only a section of it is paid towards the repayment of the principal.
By increasing the EMIs, you would be paying off more of the principal amount and likewise, the interest on the outstanding principal would also be reduced considerably. In turn, this can help you save more money which you can use for further prepayment.
- Another way to increase the prepayment of the home loan is to bring down the tenure. A longer tenure will always increase the overall cost of the loan because shorter principal payments will result in more interest being paid towards the outstanding amount.
So if one has a twenty-five-year loan initially, try to bring the tenure down to twenty years or even fifteen, by keeping your EMI amount the same. If you opt for an EMI calculator and have a look at the amortization schedule, you will find that you actually ended up saving a lot more.
- Also, when you opt for a home loan prepayment, try not to take any chances and be personally available at the bank with your checkbook. One of the ways the banks discourage prepayment is by refusing to accept payment when the borrower is not present in person for the repayment.
Banks also try to impose all kinds of charges like prepayment fees as the faster the loans are paid off, the more profit the banks lose which it makes through all the interest. Most banks also refuse to offer any kind of online prepayment facility because of this. So, if you really want to go ahead with your prepayment, make it a point to be there in person.
- Some borrowers make the common mistake of not getting the acknowledgment of repayment and a lot of confusions arise later. The acknowledgment should mention the principal amount that is due after the prepayment and it should also mention the new amount of the EMIs.
The acknowledgment should also be duly signed and stamped. In case you had submitted post-dated cheques earlier, it is also important that you get them back.
- Last but not least, make sure that the repayment of the home loan is updated in your CIBIL database and this going to positively influence your credit score as well. It is important to do this because your CIBIL score and report is a reflection of how your finances are managed and prepaying your loan is something that carries a lot of importance and makes you a safe risk for your creditors if you have to apply for a loan again in the future.
So it is most important that you should be known about how to improve CBIL score to avail any loan facility without any hassle. You can call up the bureau yourself or ask the bank to do it, but be sure to cross check.
Aditi Ahuja is a noted financial consultant and adviser. As she has worked with several financial organization for many years, she has extensive knowledge in this sector. She writes on financial affairs, issues and solutions covering a broad range of topics like home loan, RBI guidelines for a home loan, personal loan, insurance, investment, and funding, Shopping on EMI, Deposits, Taxes, Cibil score, facts on how to improve CBIL score and many more.