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Stuck with a High-Interest Home Loan?

Ramalingam Kalirajan |7410 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 27, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Vijy on Aug 24, 2024Hindi

I have home loan of 29 lakh for 20 years on 9.05 interest rate. Currently I m paying 26005 for home loan n for loan insurance 1000 so total 27005 monthly. I wanted to pay approx 20k per month, however bank not allowing to extend years or change in any term, how should I manage?

Ans: Managing your home loan when the bank does not allow for changes in terms, such as extending the tenure or adjusting the monthly EMI, can be challenging. However, there are several strategies you can consider to align your monthly payment with your desired amount of ?20,000. Here are some options:

1. Refinancing or Balance Transfer
Refinance with Another Bank: If your current bank doesn’t allow any modifications, you can consider transferring your home loan to another bank that offers more flexible terms. This process is known as a balance transfer.
Advantages: You may be able to negotiate a longer tenure, a lower interest rate, or both, which could reduce your monthly EMI to around ?20,000.
Considerations: Evaluate any balance transfer fees, processing charges, and the new interest rate before making a decision.
2. Partial Prepayment
Make a Lump-Sum Prepayment: If you have some savings or can accumulate a certain amount of money, you can make a partial prepayment on your loan. This reduces the outstanding principal, which can either reduce your EMI or shorten your loan tenure.
Target Amount: Calculate the lump-sum amount required to reduce the EMI to approximately ?20,000.
Prepayment Penalties: Some banks charge a penalty for prepayment, though most don’t for floating-rate loans. Check with your bank for any applicable fees.
3. Increase in Income or Adjustment of Budget
Increase Monthly Income: Consider ways to boost your income, such as freelance work, part-time jobs, or side businesses, to comfortably afford the current EMI.
Reevaluate Your Budget: Look into your monthly expenses and see if there are areas where you can cut costs, allowing you to allocate more towards your EMI without financial strain.
4. Renegotiating with the Bank
Negotiate for a Lower Interest Rate: Sometimes, if you have a good credit score and a stable financial history, you can negotiate with your bank for a lower interest rate. This might reduce your EMI slightly, even if the tenure remains the same.
Loan Insurance Cost: If the loan insurance is not mandatory, you might want to reconsider it or look for cheaper insurance options, thereby reducing your total monthly outflow.
5. Consider a Top-Up Loan
Top-Up Loan: If your financial situation improves, you can apply for a top-up loan at a lower interest rate to prepay a portion of your home loan. This could help reduce the principal and EMI.
Balance Transfer with Top-Up: You could also combine a balance transfer with a top-up loan, which may provide additional funds at a lower interest rate.
6. Revisit Long-Term Financial Goals
Reassess Financial Goals: If paying ?27,005 per month is stretching your finances, it might be wise to reassess your other financial goals. Prioritize your home loan as it is a long-term obligation, and consider postponing other expenses or investments temporarily.
7. Opt for a Lump-Sum Investment with Higher Returns
Invest in High-Yield Instruments: If you have a significant amount of savings or receive a windfall, consider investing in instruments with a higher return rate. The returns can be used to make prepayments on your loan.
SIP for Prepayment: Start a Systematic Investment Plan (SIP) in a mutual fund or other investment vehicles with a good return profile. After a few years, the accumulated amount can be used for prepayment.

Next Steps
Evaluate your Financial Health: Before deciding on any strategy, ensure that your emergency fund, retirement savings, and other financial goals are not compromised.
Talk to a Financial Advisor: If you’re unsure about the best course of action, consider consulting with a financial advisor to tailor the solution to your specific circumstances.
Compare and Act: If refinancing or balance transfer seems viable, compare offers from multiple banks before making a decision.
By carefully considering these options, you can better manage your home loan and move closer to your goal of reducing your monthly outflow to ?20,000.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.