How to manage your home loan ?

Having control of the interest portion of the home loan is the most important part of managing a home loan. The reason is because the interest portion of the home loan is an expense. And controlling this expense is very important in order to save money. After having a 20 year home loan for sometime there are a few things that I have learnt in the course of it which I would like to share.
  • Even if you get a tax break for 30% of the EMI (Equated Monthly Installment) on a home loan remember that the remaining 70% is an expense so unless you are making up that 70% either by renting out the home that you have or are saving it in rentals (if self occupied) it is not worth having the loan.

  • Always keep track of your home loan by using an amortization sheet. You can use a sheet that I prepared by reading this post. This sheet calculates the principal and interest payments that are going out based on the interest rate and principal outstanding at that point of time. The issue with this sheet is that you will have to maintain the changes in interest rate and the principal repayments made by you. The advantage of this sheet is that you can play around with it by doing a prepayment or by changing the interest rate and see how it will effect your loan.
    If you have taken a loan from ICICI bank then link up the home loan to your ICICI infinity login and you will be able to see the amortization sheet online. The disadvantage with the sheet they have is you cannot download it and you cannot play around with the numbers but it will give you the numbers that you need to fill up the excel sheet above. I think it is absolutely key that you have this sheet to keep track of your loan.

  • Making prepayments in the beginning of the loan tenure where the interest payments are high and the principal payments are low has a great effect on reducing the tenure of the loan. So try and make as many prepayments as possible right in the beginning - try and channel as much money as you can in prepaying the home loan.

  • If your disposable income goes up (in the case when salary goes up) then try and change the tenure of the home loan - this will increase the EMI but what it will do is that each month it will increase the principal portion of the loan and reduce the interest portion of the loan. There is a cost associated with this so ensure that the savings incurred are a lot more than the costs involved. You can calculate the savings by using the amortization sheet.

  • If you are on a variable rate home loan then interest rates are always calculated as PLR (Prime Lending Rate) - spread. Home loan companies in India rarely change the PLRs but if you visit property exhibitions you will realise that they are offering new home loan customers a cheaper interest rate and they do this by changing the spread. So you can look into changing from one scheme where the spread is more to a scheme where the spread is less. Doing this can cost as you have to close the first home loan and take another one with the new spread so the savings have to be worked out before you decide to do this. You can calculate the savings by using the amortization sheet.

Comments

Post a Comment

Popular posts from this blog

Online Encumbrance Certificate in Andhra Pradesh

You can get an encumbrance certificate online in AP now. In order to get it you have to perform the following steps. Go to the website http://igrs.ap.gov.in/ Click on Citizen Services -> encumbrance -> Search Click on Yes in the screen that appears Fill in the entries that appear in the search screen. You will have to get quite a few details in so it will help to have a copy of the registration document available with you. Once you finish entering all the details click on Submit. It will then go to a new page with the list of items that matched the search displayed. Click on the check box of the list of encumbrance certificates that are needed and click on submit. This will open a new popup window with the encumbrance certificate. You can then print this certificate. What is this useful for Anyone buying new property can go and verify the current owners of the property that is shown on this certificate in the column Name of PartiesExecutant(EX)&Claimants(CL) with the copy of
Read more

Cricket Grounds in Hyderabad

This is a repost of the article I published on the 10th of Jan, 2008 as I have added a new ground - Lahari Resorts. View Larger Map In this post I will try and update the list of cricket grounds that i know in Hyderabad. The grounds that I have listed till now are MCH Play ground, Ameerpet Francis (Do not have the contact number but go to the ground and ask for him). The charges are Rs. 1100 for the ground. They do not charge for anything more. You get the ground from 9:00 AM to 4:00PM. The ground is small. Welfare Center, Sanath Nagar Dhanraj Babu (+91 9394556356). The charges are Rs. 1100 for the ground. They charge you an additional Rs. 500 for the mat and Rs. 100 for cleaning and drawing lines and stuff. They are supposed to give you the ground from 9:00 AM to 4:00PM but what they do is that they pocket extra money from another team wanting to play and give the ground out to them for the remainder of the day assuming that you won't play for the whole day. So what happened th
Read more

Problogger guest post

Today my guest post appeared on problogger.net . I wrote about 9 Tips to Start Blogging Successfully . Let me give you a bit of a background about where this article originated from. I have been blogging for close to 3 years now but I have been doing it seriously only for the last 2 months. I then analysed what were the things that I should have done in order to have become a successful blogger based on what I have noticed on the ones that have become successful. The final analysis of my study is what I put into that article and it is what I am trying to implement since the last 2 months. Reading the comments it was exhilarating to notice that some of the readers actually thought Darren was writing the post :-). It was also nice to notice that many readers agreed with my analysis and that strengthened my belief that what I have written if followed will work. How did I get to do a guest post on problogger.net ? A little more than a week ago Darren invited bloggers to do guest pos
Read more