The financial year 2018 saw a reported 16% growth in housing loans as per the Economic Times. This increasing demand for housing finances can be accredited to schemes like the Pradhan Mantri Awas Yojana and also other initiatives take by the Indian government and financial institutions to convenience the borrower.
For instance, earlier in 2019, the National Housing Bank (NHB) provided Rs.30,000 crore to Non-Banking Financial Companies (NBFCs) to translate it to borrowers in terms of affordable home loans.
Conversely, it is supported by the fact that borrowers are thorough with the benefits of acquiring such finances, well-versed with the loan eligibility criteria and repayment options.
Borrowers are provided with a home loan repayment calculator by financial institutions so that they can evaluate the estimated monthly installments and choose the right tenor accordingly.
Factors to keep in mind to make effective home loan repayments
There are certain factors that play an integral part in the repayment procedure. Individuals need to ensure they are in tune with these factors to make effective and convenient repayment. These are –
- Loan amount
When an individual applies for a home loan, the financer evaluates such property and disburses a certain percentage as a housing loan based on the applicable LTV ratio. The applicant then needs to provide the remaining portion as a down payment. Individuals can also opt to make higher down payments to reduce their cost of the loan which will effectively lower the EMIs.
Lenders provide customers with an extensive range of tenor to choose from. Borrowers opting for long-range tenor like 20 years will have reduced home loan EMIs. Although it will ease the monthly financial strain on them, the cost of a loan will increase. This total repayment amount increases owing to higher and longer interest accumulation. Assessing their repayment capability and consequently choosing a tenor that suits their financial standing will allow them financial convenience.
- Calculation of EMI
Individuals can calculate their EMIs easily to have a better knowledge of how much they have to pay every month. They will have to know of the loan amount they are opting for, rate of interest and tenor to calculate the estimated monthly installment.
A home loan repayment calculator comes handy while making these calculations as customers do not have to acquire in-depth knowledge of the associated formulas in the calculation of EMIs.
- Financial obligations and repayment capability
Choosing a short loan tenor loan will increase the estimated monthly installments. Making such a decision in haste can put one in a financially unstable situation. Therefore, streamlining the financial obligations and planning out accordingly will help borrowers meet home loan repayment options with ease.
- Part pre-payment
For those who have chosen home loans with a floating rate of interest, making partial pre-payment of loans with the surplus funds can be handy as well. Even if the financial company charges a pre-payment fee, borrowers can still be at the beneficial end as the outstanding amount and home loan EMI will be reduced. However, one should keep several important factors in mind when prepaying the home loan.
Borrowers can make changes to their EMIs every passing year as per the growth or alteration in their repayment capability. Choosing a higher EMI for the following year increases the repayment capability of an individual in the eyes of financial companies and also eases them in repayment.
Financial companies help borrowers understand the repayment procedure by offering tools like home loan repayment calculator.
Lastly, home loan borrowers are benefitted the most if they start the repayment period right from the beginning as the construction of home begins. This gives borrowers the flexibility to pay conveniently.