Home Loan Trauma, Some Tips

If you had taken a home loan in recent time, you would be an extremely worried person. With rising interest rates, you would be cursing your bank, the Reserve Bank of India, government, even Israel for raising oil prices and what not. Cursing never solves a problem, but a pragmatic rethinking will surely help. Typically when home loans are taken the household budgets are anyway streched to the hilt, so even a small increase will be felt very sharply. Instead of grunting about the root-causes of such a massive increase recently, it would really help if you worry about what your next step should be.

Facts: Interest rates are up and so is inflation. Your home loans outgo is same (without any reduction in the burden) and you also end-up paying more for the daily household items. But your salary is same.

Effects: Your incoming money is same, but your outgoing is increasing, including reduction in your investments. (an 8% return on your fixed deposit, now is earning negative since inflation is going to be around 9%)

What to do? Here are some easy steps for pondering over and including as your action items:

1) Think of those FDs or post-office investments lying around earning negatively, so why not unlock them and pre-pay your home loans. Make sure you recalculate your emergency funds and if there is an excess, use that for prepaying the loan.

2) Think about that huge amount of jwellery your wife accumulated over the period of time, it would make sense to partially liquidate it and use that to reduce your loan burden. This will give you some breather in your cash-flows with reduced home loan outgoings.

3) Re-estimate your insurance needs, if you are under-insured, seriously think of buying term-insurance to cover any unfortunate occurances. If you are over-insured, you can think of reducing few of those unnecessary policies which is eating up your expenses without much value addition.

4) Dont be a miser, but if you are into the habit of going for weekend parties or weekeend travels stop it for just few months. It doesn't cost much for each single party or travels or movies, but colelctively it can offset your increase in home loans.

5) Start a recurring desosit for next 3-4 months and whatever amount is accumulated, use that to prepay your loans.

6) Take out all of your credit-cards including the one your spouse has, keep it inside a locker. If you dont have easy access to credit card, you won't spend. This can help reduce your outgoing on those monthly credit card bills, which never seem to go away. Once you are out of this crunch you can take them out again.

7) Redution of car loans should be given more priority than home loans or education loans. You dont get any tax benefit on car loans and you are not building any asset.

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