How You Can Reduce Your Home Loan EMI by Using Your Annual Bonus Wisely
Purchasing a home is unimaginable without a Home Loan, and with a range of options at your disposal and a fall in Home Loan interest rates in India, it has become relatively more convenient to repay it. Still, Home Loans are usually of a hefty amount and takes years to repay. However, you can reduce the burden by using your annual bonus.
What is an Annual Bonus?
The annual bonus is something that is looked forward to by every employee. Awarded at the end of a business year, Indian companies give out annual bonus to reward employees based on your performance or the company’s profits or both.
While many of us choose to purchase a range of other things with the bonus, it is important to consider using it to repay loans. An annual bonus may be considered an infusion of funds for your Home Loan, helping you greatly reduce your EMIs or your repayment tenure.
How Can I Use My Annual Bonus When It Comes to My Home Loan?
You can use the substantial amount of your annual bonus to prepay your Home Loan. Prepayment means repaying a part of your loan before tenure. Usually lenders ask for your prepayment amount to be at least the total of 3 EMIs, although there is no limit on the maximum amount you can prepay.
Also Read: Know About Home Loan Moratorium Period
What is the Prepayment Procedure?
Lenders, as per RBI mandate, cannot charge you any penalty for prepayment on Home Loans with floating interest. Some lenders may charge you a fees for prepayment on fixed interest Home Loans. So check the fees before making a prepayment decision. Secondly, notify your lender about prepayment and get an acknowledgement letter from it. You may need to carry an ID proof when making your prepayment and submit relevant documents that your lender has informed you to carry. Some lenders allow prepayment of your Home Loan online too.
Before making a decision, make sure you calculate the financial benefits of prepayment. Use this Home Loan prepayment calculator to check if your prepayment decision will help you save money.
Benefits of Using Your Annual Bonus for Part Prepayment
- Reduced EMI: EMIs are monthly payments made towards the Home Loan, consisting of your interest and the principal. When you prepay your Home Loan, your principal decreases and thus you end up paying less EMI, reducing your burden. If you are planning prepayment early in your loan tenure, which is wise, you can use a Home Loan EMI calculator to estimate the amount of EMI you will be asked to pay and if you annual bonus equals at least 3 EMIs.
- Improved Reputation: Home Loan repayment on a timely basis and a few prepayments are good for your financial health. It improves your overall credibility with lenders and improves the possibility of loan applications getting accepted in the future.
- Decreased Tenure: Pre-payment of the loan using your annual bonus can also help reduce the overall tenure of your Home Loan. This means that you can pay off your Home Loan faster!
On the whole, once you have applied for a Home Loan, it is important to pay your EMIs on time and your annual bonus is an ideal way to reduce your monthly repayment burden or Home Loan tenure. In this way you can put excess funds to good use and stabilise your financial health.
One lender that doesn’t charge any prepayment fees or penalty is Bajaj Finserv, which offers Home Loans on attractive rates of interest. With an easy online application, Bajaj Finserv Home Loans have flexible repayment plans and a choice of tenure to suit each kind of borrower.