Banks charge interest repayment and therefore in the first few years of a home loan the majority of the borrower’s EMI is the âinterestâ component while the âmainâ component only increases. in the last few years.
Equivalent Monthly Payments, or IMEs as they’re commonly referred to, are a great way to buy big with limited leverage on your savings. Of course, it’s used and even abused to buy durable consumer goods and sometimes things we don’t really need.
That said, Pramod Kathuria, co-founder and CEO of Easiloan, says, âOne of his best use cases is buying a home using a home loan and paying off every 10 to 30 months. year. A delay that allows you to pay the same amount while increasing your income (assumed natural growth curve) and owning the house of your dreams from day one.
He further adds: âOn the one hand, the mortgage offers an affordable price to the buyer of a home – with which one can usually buy a house at 5 times the price of what he can contribute. And to keep things simple, the borrower repays monthly, thus having the flexibility to manage the EMI as part of their monthly income.
Every EMI has 2 components – Principal and Interest. The principal is the amount of the loan and the interest is applied to it in a compound manner. However, banks charge interest repayment and therefore in the first few years of a home loan the majority of the borrower’s EMI is the ‘interest’ component while the ‘main’ component is not. increases only in recent years. Kathuria explains, âIt’s their way of making sure they maximize their returns from the start. Hence, it also helps to extend the term of a loan.
What is a quick fix then? Here is what you can do for your first home loan;
o Pay your IME on time
o At the same time, consciously save for smaller prepayments of capital
o When the corpus is large enough and if you can add income from the rent of the house and the payment of the annual premium, use it to prepay part of the loan
o As a result, your NDE will decrease from the following months.
o Sometimes you can opt for âno changeâ in the IME and instead reduce the term of your loan by a few months.
At what stage of your mandate should you opt for a balance transfer?
With mortgage interest rates hovering around 7% and even below, experts say now is the perfect time to go for a balance transfer. Kathuria says: “Now is the perfect time to go for a balance transfer, especially for anyone who has bought a home loan in the past 5 or so years and still has significant seniority.”
He further explains: âMortgage interest rates are at their lowest for 10 years and have trended downwards. While there can always be an upward fluctuation that is difficult to predict, in recent times there hasn’t been a better opportunity for a balance transfer.
While balance transfer will save you money on your EMI or shorten your loan term, it’s essential that you take advantage of it at the right time. Note that a transfer process comes with fees, red tape and also the risk of potential hidden costs from the new lender. Experts suggest borrowers go for this when they have a substantial amount of outstanding / at least 10 years left in their mortgage and get a much better deal from another lender. âYour loan balance is a mixture of principal and interest, and the interest payments are always anticipated by the lender. Therefore, you get maximum savings through a balance transfer only when you have a large amount outstanding. So if you are at this stage of repaying your loan, go ahead, âsays Kathuria.
With that said, timing is critical and you should opt for a balance transfer when you are in the first half of your loan term. Plus, always figure out how much time and expense you’ll need to invest in the process versus the savings. A host of balance transfer calculators provided by banks and lenders can help. Once you have a lender in mind, experts say to always thoroughly check their customer experience with relevant borrowers in your network.
Kathuria adds, âThe key things to determine here are the potential hidden charges, the flexibility to respond quickly to rate changes, and the ease of documentation for the transfer process. Also, it helps if a borrower’s home this loan is taken against is an âAPF approved projectâ by the target lender. This speeds up your transfer process.
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