Tips to Manage your Monthly Instalments During the Present Crisis

Finance

Given the current economic scenario, a significant number of individuals had to curtail their expenses as a result of limited income flow. The impact has also been significant on borrowers servicing any existing advance, such as a home loan EMI. Given the high-value of financing these advances come with, resulting in a high instalment liability, existing home loan borrowers are finding it challenging to pay their EMIs in time.

Therefore, it is best to look out for ways that can help manage these liabilities conveniently. One can follow the tips given below to that end –

Tip 1: Look for a scope for negotiations with your lending institution

Individuals with an excellent credit score of 750 and above can use it to negotiate with their lending institution regarding better home loan interest rates. Additionally, one can also request the lender to further extend their loan repayment period, which will also result in lowering their loan instalment amount.

Borrowers with low credit score can follow the below measures to improve their rating –

  • Maintain a credit utilisation ratio under 30% on all your credit options.
  • Pay off all recurring debts such as credit card bills, loan EMIs, etc. within the due date.
  • Avoid applying for multiple new loans or credit cards within a short duration.

Tip 2: Opt for a home loan balance transfer

Existing borrowers who are looking to reduce their home loan EMI can opt for measures such as home loan balance transfer. It will enable them to refinance their outstanding principal from another lender who is offering loans at a reduced interest rate.

However, before opting for a home loan balance transfer, one should know the ideal time to refinance such a home loan. When making repayment in EMIs, the interest part is higher than the principal portion in the initial years; whereas, in the later period, the principal component is greater than the interest part.

Therefore, borrowers who are still in the early years of home loan repayment can consider refinancing their housing credit with another lender.

They, however, should go through the eligibility criteria specified by the new lender before opting for a balance transfer. Some of the essential criteria are as follows –

  • Property for which home loan has been availed should be already occupied or ready for possession immediately.
  • Borrowers should have paid at least 12 monthly instalments on their home loans to the existing financial institution.
  • There should not be any unpaid dues on a home loan.

Besides lower home loan EMI, there are other benefits of home loan balance transfer such as –

  • One can avail better service terms.
  • They can avail additional funding such as top-up loan during home loan refinancing.

Individuals seeking new home loans can also avail pre-approved offers from some of the top lenders in India. These offers are available on home loans, loans against property, and such other financial products, extending hassle-free and quick financing. Individuals can check their pre-approved offers by entering nominal information like their name and contact information.

Tip 3: Make part-prepayments

Individuals can also consider making part-prepayments towards the outstanding home loan balance, if possible. Accordingly, it will lead to a shortened tenure or a lower home loan EMI. However, borrowers should keep in mind that the part-prepayment amount should be at least three times the monthly instalment amount.

Tip 4: Avail tax benefits on a home loan

Apart from these measures, borrowers can also avail tax exemptions on their home loan repayments. Although these benefits do not directly lead to EMI reduction, they can help bring in sizable savings. These tax exemptions can be claimed on home loans availed for both construction and purchase of a residential property.

One can claim tax exemptions on home loan under the following sections –

  • Section 80C –

Under this section, borrowers can claim a tax deduction on the home loan principal portion of up to Rs.1.5 lakh. Besides the principal amount, one can also claim tax exemption on stamp duty, registration charges, etc. within this limit.

Additionally, to claim tax deduction under this section, the borrower cannot sell the house for five years.

  • Section 24B –

This section allows borrowers to claim tax exemption on the interest component paid on home loans. In case of interest paid on self-occupied house post-construction, one can claim deduction up to Rs.2 lakh. On the other hand, no upper limit has been specified for a rented property.

Individuals can also claim home loan tax benefits for under-construction property under this section.

However, new borrowers should also make sure to conduct thorough research on features, benefits and interest rates offered on home loans by different lenders before applying for one.

They can use tools like home EMI calculators to make a suitable borrowing decision. It should help them to know how much home loan EMI that they can afford to fit suitably into their repayment plans.