Unlock The Full Potential Of Your Home Loan With These Expert Strategies

For many borrowers, a home loan is just a means to purchase a house – the focus is placed solely on paying EMIs, while opportunities to save money or optimise the loan often go unnoticed. 

Most borrowers are unaware of strategies like prepayment, balance transfers, and tax deductions, which could potentially reduce the overall cost of their housing loan. 

In this article, we’ll explore tips for securing a home loan with favourable terms and managing repayments smartly to maximise the potential of your loan.

Let’s begin by looking at the crucial factors that affect your approval for a home loan.

Key Factors Influencing Home Loan Approval

Understanding the key factors that lenders evaluate can make a significant difference in your chances of approval. Here’s a breakdown of what lenders typically look for:

. Credit Score: Your credit score is one of the first things lenders will assess. It reflects your past financial behaviour and helps determine your eligibility when you apply for a home loan. A score of 700 or above is usually considered ideal, but different lenders may have varying requirements.

. Income Stability: Lenders want to know you have a reliable source of income to cover your monthly payments. A steady, consistent income makes you a more attractive candidate for a home loan. Lenders tend to favour individuals with stable employment histories.

. Down Payment: The size of your down payment is another key factor in loan approval. A larger down payment reduces the lender’s risk, which can lead to better loan terms, including lower interest rates. Generally, a 10-20% down payment is required.

. Debt-to-Income Ratio: Lenders also evaluate your debt-to-income (DTI) ratio, which measures how much of your income goes toward existing debt. A lower DTI ratio (typically 30% or below) indicates a better ability to manage additional debt, making you more likely to be approved for a loan.

Please note that these are the basic factors. The final approval will depend on several other parameters, including the lender’s policies at the time of loan application.

Tips for Securing a Home Loan with Favourable Terms

Securing a home loan with favourable terms can save you money in the long run. Here are some expert tips to help you do so:

1. Boost Your Credit Score: Small steps like paying bills on time, keeping credit card utilisation to 30% of the available limit, and avoiding new credit requests before applying for a house loan can significantly improve your credit score. Lenders favour individuals who demonstrate strong credit profiles and meet the overall eligibility criteria.

2. Research Thoroughly: Take the time to compare offers from multiple lenders. Use online tools, such as EMI calculators, to assess monthly payments. If necessary, consult with financial experts to find the best loan option tailored to your needs.

3. Negotiate Smartly: Many lenders are willing to negotiate, especially with existing customers who have a solid track record of timely payments. A good credit score or a strong relationship with your lender can help you secure lower interest rates, reducing the overall cost of your loan.

Strategies to Manage Your Home Loan Smartly

To maximise the benefits of your home loan, consider these strategies:

1. Make Prepayments When Possible

Prepaying your loan can significantly reduce the total interest costs and help you repay the loan faster, and can be especially beneficial in the early stages of the loan. Making early prepayments can lead to considerable savings on interest costs, as the interest portion of your EMI is highest during the initial stages of your loan. However, it’s crucial to consider any prepayment penalties or charges that might apply.

2. Consider a Shorter Loan Tenure

Shortening the loan tenure can increase your monthly EMI payments but can reduce the 

total interest costs. While this requires a higher financial commitment each month, it can lead to substantial savings over the life of the loan. Ensure your EMI doesn’t exceed 40-50% of your total income, leaving room for other expenses and financial goals. Using an EMI calculator from trusted lenders like SMFG Grihashakti allows you to input different loan amounts, interest rates, and tenures to see how they affect your monthly payments. This not only helps you determine the optimal balance that fits comfortably within your budget but also aids in planning your finances more effectively. By experimenting with various scenarios, you can make informed decisions that align with your long-term financial goals.

3. Exploring Balance Transfer Options

A home loan balance transfer can be a strategic move to take advantage of lower interest rates offered by another lender, potentially saving you significant amounts in long-term interest payments. However, be mindful of fees associated with the transfer and carefully review the new loan terms. Watch out for interest rates that appear attractive initially but could be offset by high processing fees or prepayment charges.

4. Leverage Tax Benefits 

Under Section 24(b) of the Income Tax Act, you can claim up to INR 2 lakhs as a deduction on interest payments for self-occupied homes. Additionally, principal repayments up to INR 1.5 lakh are eligible for deductions under Section 80C. If this is your first home loan, make sure you explore these benefits to reduce your tax burden.

5. Additional Considerations 

Review your loan terms periodically to identify opportunities for savings. Additionally, maintaining an emergency fund is essential in case of unforeseen events. Aim to keep at least three months’ worth of EMIs in reserve. Last but not least, it’s equally important to balance repaying your loan while meeting other financial goals. Don’t let your home loan overshadow your other plans – continue saving for retirement and exploring investment options alongside your repayments.

Closing Thoughts

A home loan requires careful planning and consideration of multiple factors. By understanding the key elements that influence approval, implementing smart loan management strategies, and staying informed about available benefits, you can make the most of your home loan journey. Remember, every financial situation is unique, so take the time to evaluate your options and choose a path that aligns with your long-term financial goals and lifestyle needs.

*T&C apply. Please note that final approval, loan terms, and disbursement process may vary based on lender policies and borrower’s eligibility.