Applying for a loan often comes with a pinch of salt if we do not pre-plan the allocation of our financial resources. While the likes of car and personal loans are often way too small to fret over, financing a new home can quickly turn into a troublesome affair if the rates, EMIs, and repayment plans aren’t in sync with the existing financial standing.
The Importance of Specialized Funds
When it comes to repaying the home loan, we are often worried about the soaring interest rates and how the same can easily surpass the principal amount, provided the tenure is on the higher side. However, we can scale above this bottleneck by either opting for mutual funds or Systematic Investment Plans, which more than often take care of interests, EMIs, and even the foreclosing amount.
How does the concept work?
As a rule of thumb, a loan amount of 40 lakhs incurs interest of almost 46 lakhs over a period of 20 years, provided the current home loan interest rates are applied. The sum of the principal and the incurred interests divided equally for 20 years or 240 months, signifies the average EMI for the given home.
However, during a certain point in time, you might want some additional support for paying either the EMI or to foreclose the amount, as per preferences. This is where a Systematic Investment Plan or a more disciplined form of SIP comes in handy.
With a monthly investment of something as low as 0.1 percent of the loan amount, you can accumulate a corpus that is significantly higher than the payable interest.
Staying invested in the SIP throughout the home loan tenure helps you make up for the interest whereas making short term plans helps you pay off a few EMIs, with the procured amount. A midsized plan often supports your foreclosing aspirations.
What are other investment plans or repayment funds?
Besides mutual funds and SIPs, you can even rely on the following funds for ensuring easier repayment of the home loan, be it EMIs or the foreclosing amount:
Step-up and Step-Down Plans
More than funds, these are repayment plans for individuals who are expecting a rise or fall in their incomes, with time. The financial institutions track the earnings and increase or decrease the EMIs, based on the selected repayment plan.
A Fixed Deposit is an extremely secured investment plan with almost zero market threats to account. In case, foreclosing at a later stage is on your mind, you can use up the same for repayment the pending sum without any penalties.
Automatic Tranche Funds
These funds are more like trickle-down repayment plans for properties that would take some time to complete.
While each one of these funds or plans is effective when it comes to simplifying your loan repayment method. Nothing works better than a SIP or Mutual Fund when flexible payment options are concerned, as per the current home interest rates.