One of the best ways to have a smooth home loan borrowing experience is to manage your EMI payments efficiently. This article lists down the importance of repaying higher loan EMIs.
Once your home loan is approved, the next step is to manage your finances well so that you can repay the EMIs on time consistently. You must ensure that the EMI is affordable to you. Assess your monthly income and expenses thoroughly to determine the maximum amount you can afford to contribute towards EMIs without compromising on your expenses and other financial goals.
You can determine the EMI using the online EMI calculator. It is an easy to use tool that allows you to calculate the EMI within seconds. While most people tend to focus on keeping the EMI as low as possible by taking the loan for a longer duration, it is better to pay higher EMI (provided you can afford it) and pay off the loan in quick time. The shorter the term, the lesser will the interest and lower will be your overall payout. You can plan your finances well in advance so that you can increase the EMIs over a period as your income increases. The benefits of paying higher EMIs include:
Paying higher home loan EMIs not only helps you to repay the loan before the actual loan term but also help boost the creditworthiness. Make sure that you choose the EMI payment date closer to the date of salary so that you can minimise the chances of default and pay a little extra than the actual amount. Missing the EMI payment even for a single month may not only attract penalty charges, but also it will have a negative impact on your credit score.
By paying higher EMIs, you can significantly reduce the interest outgo every month. You may feel tempted to increase the duration to reduce the EMI. An EMI of 35,000 INR may seem higher against an EMI of 25,000 INR. In this scenario, your contribution to the home loan interest will be higher than the principal amount. Try to increase the EMI payout by at least 10% every year as your income increases. This will significantly increase your contribution to the repayment of the principal amount, and consequently, you can close the loan account in a reasonable amount of time.
If you think that you can reduce the total cost of your home loan by switching the loan to a new lender who is offering better interest rate, don’t hesitate to take advantage of the balance transfer. The lenders revise the interest based on the base rate fixed by the Reserve Bank of India and the external market condition. If you find a lender, who is offering a better rate than your existing lender, make the switch. With a lower interest rate, you can increase the EMI payout and repay the loan faster.