Home loans are big commitments. They involve big amount of money and time scales which span over years. The time span is big enough to bring about a change in financial circumstances of a home owner. These can be good or bad. If a home owner finds good opportunities, then he/she can acquire the ability to service the loan better. However if he/she runs into rough weather, then a long term commitment of servicing a home loan can become difficult.
So how can a buyer make timely home loan EMI payments if there is a financial crisis?
There are numerous ways to go about it. Planning for such a situation in advance invariably helps. However given the financial commitments related to the home loan, many times such plans are not sufficient. The reason is that backup plans revolve round savings and more investments which can be tedious for a normal person. Hence not many people can easily deal with the extra financial commitments.
The following ways can be useful in an event the need arises for arrangement of an extra sum while a person is still servicing a home loan.
Balance transfer is a way to refinance a home loan. It involves transferring a home loan from one lender to another for financial gains. In this process, a person who has the inability to service a loan in its current form can look for better loan plans. These loan plans may involve reduced interest rates which can facilitate lower home loan EMI payments.
When one opts for a balance transfer, a second lender takes over the home loan and pays the first lender on the behalf of the home owner. There is a cost associated with this transfer which a home owner has to pay to the second lender. For all practical purposes, the loan is repaid to the first lender and the home owner is no longer liable to make any more payments to the first lender.
Then this home owner has to start paying off the remaining loan amount as per the terms laid down by the second lender. The balance transfer is an efficient way to reduce financial burden if the second lender offers interest rates which are lesser than the interest rates offered by the first.
However care has to be taken while calculating the total cost that a home owner bears after the balance transfer. The net amount payable along with the refinancing costs should be lesser than the total amount that the home owner would have paid the first lender. If the difference is not substantial, then refinancing will not be as fruitful as envisioned.
Top-up Home Loan
If the financial crunch is anticipated to prevail for a short time, then a top-up home loan is another available option. This loan is an extra loan that a home owner can procure from the same lender who has provided the original home loan. Such loans are like personal loans- only with lesser interest rates. If a home owner has been regular with home loan EMI payments, then the top-up loans are easily available. However the tenure for payback is less and therefore one should only opt for them if one is expecting windfall gains or substantial income in future.
It is important to know that both the aforementioned home loan service solutions can be availed only after a minimum tenure of the loan period has been timely served. Hence one should adhere to the payment schedule before being able to avail them.