Home Loan Tips: In the latest data, retail inflation has again increased to a record level of 14 months. The Reserve Bank of India (RBI) has kept the repo rate constant at 6.5 percent for the last ten MPCs. In such a situation, people who were waiting for home loans to become cheaper are in for a shock. SBI has already indicated that there is little hope of cutting interest rates in the MPC to be held in the first week of December. This time the MPC meeting is going to be held between 4th to 6th December. This time too it is expected to be only 6.5 percent.
Some people are still waiting for the repo rate increase by RBI between May 2022 and March 2023. Waiting for the interest rates to come down. Home loan EMI or loan tenure of many people has increased. To deal with this, some people have prepared their plans while some are still waiting for the interest rates to reduce. If you have taken or are about to take a home loan, then it is important for you to keep some things in mind. But if you want to repay your home loan prematurely, what should you do? Let us tell you-
1. Keep the loan tenure short
Experts suggest keeping the loan tenure minimum to reduce the interest burden. The longer the loan tenure, the higher will be the interest payable due to compound interest. For example, if you take a loan of Rs 50 lakh at 9% interest for 10 years, the interest payment will be Rs 26 lakh. But if this period is extended to 15 years then this payment increases to Rs 41 lakh. Whereas the interest payment on a 20 year loan is Rs 58 lakh.
2. Importance of increasing EMI
Short loan tenure can be challenging for new home buyers. Actually, sometimes high EMI does not fit in their budget. But if you are opting for a longer tenure of 15-20 years, try increasing the EMI gradually as your income increases. A 5% increase in EMI every year reduces the tenure of a 20-year loan by almost eight years. If you increase EMI at the rate of 10 per cent annually, then a home loan of Rs 50 lakh at 9 per cent interest rate will be repaid in just 10 years.
3. Insurance
When you are considering taking a home loan, it is very important to know about the insurance plans offered by the lender. It is wise to take life insurance along with home loan to keep your dependents stress free. But the policies sold by banks have some limitations. These policies are often loan linked and are not transferable. This means that if you change lenders during the course of your loan, it will expire. Therefore, it is advisable to buy term insurance separately. The coverage provided here continues in all circumstances.
4. Relationship between interest rates and benchmarks
It is important to understand the relationship between the benchmark and the loan rate while choosing a home loan. Most home loans have floating rates which are linked to an external benchmark such as the RBI repo rate. It remains unchanged at 6.5% through June 2023. Lenders set a reset period which can be quarterly, half-yearly or annually. Determine the rate reset frequency before taking out the loan. Choose loans that reflect rapid changes in external benchmark rates.
5. Joint Loan
If your spouse is working, you can take a joint home loan for tax benefits. The government allows deduction of up to Rs 2 lakh on interest charged on home loan payments. However, with rising home prices, the average loan amount has increased significantly in recent years. A home loan of Rs 50 lakh for 20 years at 9% interest rate would be approximately Rs 4.5 lakh per annum.
