How to make the most of your home loan tenure?
What are the current changes in banks with reference to loans?
With the Reserve bank of India (RBI) reducing its statutory liquidity ratio (SLR) from about 100 basis points to 23%, the State Bank of India has made an announcement, which says home loan interest will be cut to 10.25 per cent for loan amounts below Rs 30 lakh, and interest rate for loan amount between Rs 30 lakh to Rs 75 lakh will be at 10.40 per cent. Since the base rate remains the same at 10% , existing borrowers cannot avail the benefit of the rate reduction.
Loan repayment:
With the latest changes in the loan repayment policy, a person can repay his/her home loan up to a maximum of 30 years or till he/she reaches the age of 70. However, the existing loan borrowers can opt for the loan conversion option with the base rate being retained at 10%. The borrower will have to pay a certain amount of processing fee for procuring loans along with property verification fee and stamp duty charges. Other banks are also anticipated to follow the suit.
However, there are various aspects to be considered before opting for a loan in the current situation.
Make the most of EMI and loan tenure:
At the time of loan repayment, the repayment pattern is well planned in a way wherein it does not allow more than about 40-50% of your monthly gross income to be repaid as equated monthly installment (EMI). You should be careful and plan your EMI amount based on your income as giving away too much as your EMI will result in the holdup of other huge expenses.
In the current situation, repaying a loan with a maximum tenure will reduce monthly burden and will help you manage the loan with ease. You should ensure that you close your loan before the maximum tenure ends. However, there might be a spike in the interest rates and banks will increase the loan tenure in order to help the loan seeker to pay his EMI flexibly. In order to close a loan early, if enough fund is there at hand, one can pay it at intervals.
When a borrower makes a part-payment, the amount will be deducted directly from the principal, letting the person pay the loan faster than the term requires. One should remember that the longer the tenure the more interest he/she will be shelling out. It is always better to prepay the loan during the first half of the loan tenure since the interest of the EMI is the highest in the initial stages and later reduces in the latter part of the tenure. Henceforth, making a regular prepayment from the date of prepayment will help a loan seeker save significantly on the money which is being given in the long term for the home loan.
