There’s no doubt borrowing a home loan is a convenient way to afford a property. Unfortunately, it is also a long-term commitment, so you may end up paying monthly instalments for the next decade or more.
That’s why it’s crucial to plan your EMI repayments well in advance to avoid putting excessive stress on your finances. After all, defaulting or missing out on your EMIs can have serious consequences.
So, what can you do to avoid defaulting on your housing loan EMIs? Read on to find out.
Go for competitive interest rates and longer tenure
While selecting the lender, pick the one that offers competitive home loan rates to lower your EMI amount. To ensure this, you must compare different lenders and their housing loan offerings. Instead of picking a financial institution blindly, it’s best to do your research well before you sign the dotted line. compare different lenders and their housing loan offerings. Instead of picking a financial institution blindly, it’s best to do your research well before you sign the dotted line.
Another factor to consider is the loan tenure, which directly affects your monthly EMI amount. If you pick a longer loan tenure over a shorter one, your EMI amount will be smaller. It will also help take off some pressure from the repayment process, but you will have to pay more interest on the outstanding amount.
Make a higher down payment
Financial institutions offer loans that cover 80 to 90% of the total value of the property. As a borrower, you are supposed to pay the rest in the form of a down payment. If you can pay a higher down payment, you can bring down your future EMIs and even increase your home loan eligibility. This is one of the most effective ways to make your loan EMIs more affordable and avoid defaulting.
If you’re servicing a loan at a high interest rate, refinancing may be a viable option, especially if you’re in the early stage of the loan. You can take a new home loan from a different lender at a lower home loan interest rate and benefit from a smaller EMI amount. However, you’ll require a high credit score of 700 or above to get a good deal.
Discuss with your lender
Having a trustworthy relationship with your lender can help you out if you’re unable to pay the monthly instalments on time. If you are going through a financial crunch or a medical emergency, the lender might extend your loan period. This is called a grace period. However, you will have to deal with some penalties if you request a grace period. So, it’s best to talk to your lender about your situation and come up with a solution together.
The bottom line
While you cannot always predict financial distress, effective financial planning can be the key to avoid defaulting on your loan instalments. Following the measures mentioned above can also rescue you during a tight spot.
Nevertheless, you can use a home loan EMI calculator to get a precise estimate of your EMIs and plan your finances better.