Financial planning makes loan repayment comfortable

Buying a home is a major financial commitment for an individual. Usually, a homebuyer stretches financially to purchase a house, and in most cases, borrows the funds from a bank.

These loans are large amounts and in the light of the volatility in interest rates, it is advisable to spend a good amount of time on financial planning in order to avoid a debt trap in the future. The interest rates have been quite volatile since the last 10 years. There have already been a couple of cycles of soft and hard interest rates.

There are three types of home loan schemes - fixed rate scheme, floating rate scheme and mixed rate scheme (also called teaser rate scheme). Under the fixed rate scheme, the interest charged on the loan amount remains fixed for the entire loan tenure.

However, these days most banks have stopped offering the fixed interest rate scheme. A few banks offer a fixed rate at significantly higher than the prevailing rates and that too the agreement has a clause of variability based on time or under certain conditions.

In a floating rate scheme, the interest rate varies with time based on the market conditions. In the teaser rate scheme, the bank offers an attractive fixed interest rate for the initial few years and links the loan to a floating rate thereafter. There are many variants of such schemes available. They suit the needs of different borrowers. Therefore, it is very important to analyze such schemes based on your financial condition before getting into a particular scheme.

Usually, a home loan is a long-term financial commitment as the tenure goes for more than 10 years in most cases. Therefore, it is important to think about various personal milestones and plan for regular monthly outflows before taking a loan.

Regular payments of EMI is very important and an essential part of a home loan. The payment history of an individual goes a long way in deciding future loan disbursements. Therefore, it is important to keep in mind that one should be regular and prompt in paying EMIs. It is advisable to discuss with your bank in case of any difficulties in paying the EMIs and work out a solution. You can look at prepayment, part prepayment or foreclosure of the loan to reduce or stop the EMI dues.

Source :ET