Buying a house is a fairly lengthy exercise as it involves in-depth research and arrangement of funds. The rising property prices have also made this task difficult. A Home Loan comes to your rescue and fills the gap that arises due to lack of funds for buying a house. It is a long-term financial instrument, which involves a large amount to be paid as down payment, and then a monthly outflow of money, known as Equated Monthly Instalments (EMIs).
Banks now offer loans up to 90% of the property value. For example, if you want to buy a home of Rs. 30 lakhs, then you need to pay Rs. 3 lakhs only, and the bank will pay the rest as a loan. The tenure of the loan can go up to 30 years subject to fulfilment of eligibility conditions. So, for a loan of Rs. 27 lakhs and tenure of 30 years, the borrower needs to pay an EMI of only Rs. 20.76K at an interest rate of 8.5%.
It is important that you understand how much EMI you would be able to service before applying for a Home Loan. If you default your EMI payment, then it can have severe repercussions on your personal finance.
Importance Of Paying Home Loan EMI On Time
Normally people take a Home Loan for a duration of 10 to 30 years for which EMIs have to be paid regularly. Regular payment of EMIs impacts your CIBIL score positively, which in turn enhances your chance of availing a fresh loan. Failure to do so will have a negative consequence on both the CIBIL score and fresh loan availability.
If you do not pay EMI for more than 2 or 3 months, the bank may put you in the defaulter list and it may ask you to clear the due within the stipulated date. In continuous default cases, the bank may take action by seizing the property and making a recovery through the auction of the property. Usually, banks try to settle the default case by giving time to the borrower to repay or asking the borrower to clear the outstanding EMIs gradually. If the delay persists, then a notice from the bank is sent to take the possession of the property first, and finally resorting to an auction date if the outstanding amount is not cleared within the stipulated time.
If you have taken a Home Loan, then it is important to service the EMI on time or you may have to give up your home.
Additional reading: Home Loan Handbook: All Questions Answered
Take Loan As Per Your Income Level
You must consider your income level before you buy a home on loan, and not stress your finances for repaying your loan EMI. Also, when buying a house, you should consider components like maintenance charges, security fees, society fees, etc. for which you may not get a loan, but would need to be paid regularly after shifting to a new home. It is advisable to keep an extra amount handy to meet such expenses, which in turn would not affect your EMI payments.
Take Loan For A Longer Duration
If you are not sure about the consistency of your income, then opt for a longer duration loan to reduce the EMI size. You can pay the extra amount over and above the EMI to repay the loan early. In a situation when you are facing a liquidity crunch, then you won’t find it difficult to repay the loan EMI.
Pay EMIs Through Auto Debit
Banks allow you the facility to set an auto debit mandate in your bank accounts to repay the EMI. Once you fix the date for the auto debit, then your account will automatically get debited and the requisite amount would be paid to the loan account. Auto debit helps you to clear the EMI on the due date without any hassle and saves you from unnecessary manual payment delays like the wrong amount in cheques, cheque clearance, etc.
Maintain A Contingency Fund
Prior to buying a home on loan, you must build an appropriate contingency fund for at least 8 months. It will ensure fund for EMI repayment in case of an emergency or income irregularity. If you have sufficient contingency fund, then you do not have to worry about situations such as late salary or job loss.
Timely payment of EMI improves your financial image and your CIBIL score. You can enjoy living in your home along with your family without any stress of EMI repayment. For stability in your personal finance, you must take all the necessary steps to ensure that EMIs goes on time for your Home Loan.