When it comes to buying a new home, a lot many opt for loans and mortgages. Once the dream home has been acquired, there comes the monumental task of repaying that money, with debt and the non- repayment of which will lead into debts, eventually even resulting in foreclosure in some instances. With a bit of calculation and expert help, however, it is possible to lower monthly repayments to a considerable degree.
Firstly, a lot of prudence is required while opting for a loan or mortgage in the first place. Users opting for them might be lured in initially with the apparent low interest rates, but there are always some hidden costs that they end up paying and by that time it is too late to turn back. It is best to opt for a loan that might initially charge 2 or 3% extra, but there would be no hidden costs that would and up snowballing into something higher.
Some aspects worth keeping in mind
Refinancing at the right time is also important. A lot many users complain that they had refinanced with expectation of lower monthly repayments and yet there weren’t any considerable difference. That is because, they had refinanced towards the end of the term and by that time most of the interest had been paid off. The end of the term is mostly for repaying the principal amount and that remains the same anyway. Consider refinancing on a fresh mortgage and you just might end up saving quite an amount.
It is also at times very tempting to opt for mortgages where the repayments are mostly paid towards the interest. Banks and loan companies use tempting lines that the user would not have to pay the principal amount for the first five, ten years or so. This can sound very lucrative for someone who only earns a modest amount and feels there would be less financial pressure for the first five or ten years and he can start paying the principal when his income has increased. The flip side is, the principal remains the same, but with the years, the interest rates might increase, depending on the market.
Paying the principal and interest partially together might seem like higher repayment initially, but will be much lower in the long run, as since the principal amount decreases, the rate of interest goes down likewise. Companies often hide this truth because this is one of their surest ways of making profits.
Strategies that can be followed
If one has multiple loans, another very good option is to opt for debt consolidation. With all the debts and mortgages together, one has to make one payment each month and that amount is significantly lower than what would have been expended if the payments were done individually. Opt for an expert debt consolidator, and it would be his task to speak to the respective mortgaging and loan companies and make them agree to the terms. He would charge a fees, but that would be absolutely worth it.
EMIs for home loans are one of the substantial deductions that made from our salary and the sooner one gets over them the better. Since it is a fixed amount that has to be paid each month to the lender on the fixed date, for the entire tenure of the loan period, the EMI would continue till the loan has been fully repaid. The EMIs mostly consists of the principal amount and interest because all other payable charges like processing fees are already paid to the lender separately at the start of the loan application process. In the early years, the bulk of the EMIs comprises of the interests and only when the time goes by, the percentage of principal in the EMI increases.
Lowering EMI payments- what can you do?
However, it is always a good idea to look for ways by which one can reduce their EMI payments because no one wants to spend years paying interest. Some of the ways to do so are:
Higher down payment: The down payment is the first big lump sum paid and that brings down the principal amount significantly. The interest is calculated on the principal amount and with a large down payment, you opt for a lesser loan amount and that means lower interest. It might seem difficult to make a large down payment but if you already have plans to get a home in future, start saving from now so that you are able to make that payment. One can use reducing EMI calculator to check how much one is saving.
Opting for a longer tenure: Opting for a longer tenure would mean that your EMIs are smaller because the principal and interests get divided over a greater number of years. The downside to this is that one actually ends up paying more in the long run. However, if you are looking more towards your immediate needs, what with family responsibilities and tuition fees for children, then opting for a longer tenure will result in lower EMIs. You can always make part prepayments when you get hold of some extra cash and pay off the loan.
Making early payment is a good way to reduce your EMIs because in that way, you start paying off more of the principal amount and the interest in the latter part of the tenure is reduced because of the reduced outstanding principal amount.
One can always negotiate with the bank if one has a good standing with the lender and if you are always paying your EMIs on time. A reduced interest rate could be asked for if you have a good credit score and that will lower the EMUI burden. The idea is to reduce the payment as much as possible and some also opt for home loan bank transfer where they transfer their existing home loan balance to another bank which is charging lower interest rates. With some careful planning, one would thus be able to bring down the home loan amount considerably.