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Is this the right time to pay back the housing loan and settle?
Posted on: 15/Mar/2017 2:50:00 PM
We might have heard that it is indeed a pleasant burden for those who have taken a housing loan to buy their own house. This is true as it is a life-time investment for ones own secure place without the need to pay rent.
However, even this pleasant burden will be somewhat mitigated of we manage to pay the loan taken by paying regular amounts to settle well before the stipulated long period for the repayment of the housing loan.
And the good news is that the current situation is ideal for doing this.
After the demonetization, all the public sector banks, private sector banks and the housing finance agencies have reduced the interest ratio for housing loans.
So, in the current situation, the housing loan interest ratio is very less.
Thus, there is an environment where the new buyers of houses can get housing loans at reasonably low interest ratio.
There is a benefit in this situation even for those who have already availed housing loans. The repayment period has been reduced for them.
However, it might not be enough if the duration for repayment comes down the debt burden also must come down.
The one avenue for this is to pay a part of the housing loan taken in advance. How? Generally, it is better to make some lump sum payments when the opportunities are available as this would reduce the principal amount.
When the principal amount reduces, the installment would be calculated based on the reduced principal. As the interest ratio has also been reduced, the installment amount will come down due to this as well. The interest amount comes down. This is good news for the housing loan availing group.
Generally, the banks do not reduce the installment amount whenever the housing loan interest ratio goes down. They will only reduce the pay-back period.
The reduction of the repayment period and also because of the payments made in advance will enable quick repayment of the housing loan.
The interest ratio of the housing loans has been reducing over the last few years. There have been no occasions when it has been increased.
The economic experts observe that the recently reduced interest ratio will remain for the coming quarters.
In this situation, it is the right time to pay a part of the housing loan or even more. There are chances for the interest ratio to go up again. So, in case a part of the housing loan is paid, leading to reduced principal amount, the burden will continue to be light even in the event of interest ratio going up.
Further, with the advance payment on the housing loan, the principal amount and the amount paid as per the interest ratio will also be lesser, thus making a surplus amount available. The advice is not to spend this surplus - save it and pay it as another advance payment in 1 to 2 years. This will create a good opportunity for the earlier settlement of the housing loan.
The banks highly recommend the strategy of making these advance payments as and when the opportunities permit.
The present scenario on these aspects is just right to implement this plan.
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