Why You Must Create a Financial Buffer for Smooth Repayment of Home Loan

 Why You Must Create a Financial Buffer for Smooth Repayment of Home Loan

Meticulous financial planning is one of the first steps of availing a home loan. Proper planning can help you make the repayment process easy without compromising on your other expenses. Read on to know why you must have a buffer for home loan EMIs.

A home loan is a long-term financial commitment. Typically, a home loan is taken for 15-20 years, which means that you must pay the EMIs for that many years. If you fail to repay the amount, there is a risk of default, and you may lose the possession of your property.

It is therefore paramount that you are careful with your finances so that you have enough funds every month to repay the EMIs without compromising on your other essential needs. Sometimes, when the finances are strained, it can have a significant impact on the cost of living. To avoid such a situation, you must have a financial buffer for EMIs.

Here a few simple yet useful tips that you can follow to buffer EMIs for tough months.

  • Borrowing responsibly is vital. While applying for a home loan, you must carefully consider your current financial status and expected increase in income in the future. This will help you decide the maximum amount you can afford to borrow. Never borrow beyond your repayment capacity.
  • Choose the loan tenure wisely. It should not stretch for many years, and it should bot be too short either. You can use the online EMI calculatortool to compute the loan tenure so that you can easily afford to repay the EMIs without stretching your monthly budget.
  • Once you have determined the loan tenure and the EMI amount, if needed, redo your monthly budget to include the additional expenses you may incur in your new home. Assess all the costs and adjust your budget accordingly. Not having a fixed budget for all expenses may hamper the EMI repayments.
  • If possible, try to pay an additional EMI when your finances are robust, or you receive any lump sum amount like a bonus, gains from investment, or inheritance. Paying even a little additional money can have a significant impact in the long run in reducing the loan tenure and the overall interest rate.
  • Focus on regular savings and build an emergency fund. Make sure to set aside a certain amount from your income every month for emergencies like unexpected health issues, house repairs, etc. The savings can help you maintain your lifestyle during the tough months. The emergency funds, if need be, can also help you take care of EMI payments.
  • Try to avoid other debts. The home loan EMIs form a significant part of your debt for many years. Hence, unless unavoidable, do not apply for another loan. Also, make sure that you use your credit card responsibly as credit cards tend to have high-interest rates. Minimising the debts will help you avoid the stress of paying too many bills in financially tough months.
  • Take advantage of the tax exemptions available for a home loan. Tax benefits on a home loan can be claimed on repayment of both the principal amount and the interest under Section 80C and Section 24 of the Indian Income Tax Act. Getting the tax benefits can help you buffer the savings that can be used during financially tough times.
  • Make sure to purchase an insurance cover for your home. It can help you get compensation in the event of any unfortunate events like damage to your home due to fire or any natural disaster. An insurance cover will keep your savings and emergency funds intact.

Apart from the above tips, you can consult a home loan expert or a financial planner to know more about healthy loan planning practices.


Paul diverson