With the rising interest rates by the day, it is not advisable to opt for a home loan since these rises are not going to end. But consider yourself lucky, to pay your EMIs worth 40% of your salary. That is possible only if you have been a prudent borrow. But if you have been paying around 65% or more of your salary towards paying off your EMIs, then there is a lot of Math work to do and plan out an appropriate repayment plan so that you need not be much disturbed by these interest rate hikes.
Feel motivated to invest
Most banks cap maximum of 50% of your salary towards Home Loan EMI payments. But borrowing about 40% of your salary can give you a chance to save a part of the rest of your salary, maybe in bank or post office deposit schemes. This helps you to pool up savings over a period of time. If you are opting for saving in bank deposit schemes, which have flexible deposit tenures, you can avail 6% of interest on your recurring deposits. Saving in post office Recurring deposits will charge your patience of 5 years but provide you 8% of interest. In equity- oriented mutual funds, which are a tenure of over 5years, the SIPs can be benefiting. If you have been a successful employee or have made a good profit as a business man, then redirect your bonus towards the immature payment of your principle amount of your loan. This step can considerably lower the rate of interest on your loan amount, however try opting for this option only if you have gotten rid off other long term investing goals.
Incase of a default, try not to liquidate your assests/ investments. Remember, the best option is to redirect the profits earned on your investments towards the repayment of your loan amount. This can cause the default to never appear. Adopting such an aggressive investment strategy can help you pay off your loan amount within 2/3rd of your loan tenure.
What if you want to increase your loan tenure?
With the rise in home loan rates, you have two options in front of you –
a) Pay the high rate of EMIs or
b) Increase the loan repayment period.
But increasing the loan tenure might want you to think twice since you have to pay your EMIs more than the current payment but for a long period.
What if you want to switch lenders?
Switching between home loan lenders can be of a costly affair. But it is advisable to switch your lender only if the potential lender in question provides you the loan with an interest rate of 1-1.5% lower than the current interest rate. Now the downside of this is the three-fold charge that comes with this decision. It involves a substantial amount of about 2% of the total outstanding amount. But you can take a deep breath if you have funded the repayment of your loan from your personal savings. But it is always advisable to go through the fine print of your loan agreement to get important details about your banks policy on refinancing of the home loan or balance transfers because there are chances of your bank to fine you a penalty if your switch lenders for prepayment.
Switching lenders will also add to up to your list of expenses as it includes processing fees which can be 0.50-1%, obtaining fresh set of NOCs, creation of an equitable mortgage, which includes additional stamp duty charges. So before you make any conclusions, do read the fine prints and do not let your dream home become an expensive reality.