How to Plan Monthly EMIs

Moving into your own home is an inspiring dream that most of the people hope for. Funding for your new home can be a nightmare if you don't map it thoroughly. Majority of the home buyers take up home loans to finance the purchase of new homes. However, the down payment in such cases is massive, and it could drain out a large chunk of your salary. The EMI payable depends on the amount that has been borrowed in the first place. It is vital that eligibility for a home loan shouldn't be the only factor to be considered before building or buying a home. It is essential to take a loan which the borrower can repay comfortably. So, you must ensure that you analyze the costs linked with the loan like processing fee, the interest rate applicable and the method adopted to estimate the interest. If the EMI payable each month on loan is more than 50% of your income, then you must reconsider the loan.

Here is a list of ways in which you can manage your monthly financials after making the initial downpayment:

• Firstly, you must estimate all your expenses apart from the EMI and try cutting back the costs on that front. You must make a budget for that. A smart way of making a budget of your expenses is to open a separate account for servicing the loan apart from your savings account. If your account gets debited from multiple streams, it gets challenging to keep track of the outflow of money. Having different accounts makes tracking expenses a lot easier.
• Spending less is one of the essential ways in which you can save. There are instances when people face emergency financial expenses.
• You can also invest the additional money in mutual funds. A good quality mutual fund can give high returns over time.
• If you receive an unexpected lump amount, be sensible and use this amount to prepay a portion of your loan. If you choose to prepay your loan partially, you can choose to either bring down the EMI or increase the tenure of the loan repayment. You need to be comfortable with the monthly cash inflow after reducing the EMI. If you observe that you are not pleased with this amount, you can cut down on the EMI until your cash inflow upgrades.
• Many banks offer you a step-down EMI option as well. If you go for this option, you can bring down your EMI amount temporarily. It can be increased once your income and cash flows stabilize using a step-up EMI option.
• When you have to repay multiple debts, it is better if you prioritize and sort them according to the interest rate they carry. You should focus on repaying the loan with the highest rate of interest first. Clearing off the debt with the highest rate can help you save in the future. For example, if a person has a credit card loan, personal loan, home loan, and car loan, he or she should focus on repaying the credit card loan first since they often carry the highest interest rates. If not paid on time, it is likely to gather a hefty penalty compared to any other loan with a lower rate of interest. Also, paying a loan with a high interest rate over a long period also means that you will be paying more money in the form of interest as opposed to one with a low rate of interest.
• To avoid getting burdened financially due to the EMI payments, you must choose the loan with the lowest possible interest rates. If you get the EMI at a low-interest rate, then the absolute amount paid each month is also less. To get the best deal, you will be required to check the rates that are offered by banks and NBFCs and choose the loan that best fits your requirement.
• Opting for discounts and offers provided by the banks for their customers who have a solid credit history can reduce the financial burden while helping the individual in saving more in the long run.