Four Tips to Simplify Floating Rate Home Loan Repayment

“Home is where one starts from.” -- T.S. Eliot

Home is the place where you build and share several memories with your loved ones. It is the biggest investment any person does in their lifetime. Thus, a lot of feelings and emotions are attached to this place.

Every person aspires to buy a home. However, buying a home is difficult due to sky-rocketing real-estate prices. Understanding this need of people, several banks offer home loans. Such loans are granted according to two broad schemes – fixed interest rate and floating interest rate.

Fixed rate loans EMI are independent from market fluctuations while the floating rate ones are strongly affected. Thus, an average person may find it challenging to cope with EMI payments and managing home budget. Here are a few tips that we have collated to assist you in repaying this type of home loan easily.

1. Partial pre-payment

Prepayment of loan is associated with repaying the loan before the stipulated time duration. It is termed as foreclosure. In partial pre-payment, some part of the loan is repaid, while the remaining outstanding amount is paid back as per the agreed upon repayment cycle. Opting for such option will save you from paying extra interest and market-related interest rate spikes.

There comes a situation when EMI increases due to increase in floating rate of interest then customer have 2 options either to pay the increased EMI or can do partial pre-payment to have constant or reduced EMI. This PNB Housing Rate Reset Calculator will help you how much prepayment you need to pay to have preferred EMI amount.

2. Keep an emergency fund

As floating rate loan interest rates vary, the resultant EMIs will also change. To avoid the burden of extra payment at some times, it is recommended to keep an emergency fund. Such fund can be maintained and utilized when the EMI crosses the regular limit.

3. Allocate extra from your monthly budget

Understanding the volatility of the interest rates, it is advisable to reserve some extra funds towards EMI payments. This will safeguard your budget from extra spending. Moreover, if they are not utilized, you can use it for some other purpose.

4. Look for Shorter Loan Tenure

Shorter loan repayment period will increase your EMI, but will keep you safe from the eventual EMI hike. Thus, if you are able to afford higher EMIs then choose a shorter repayment period.