We have seen numerous examples in the past few years where the interest rate went up in a very short span of time. It pinched the home loan borrowers because their EMI went up drastically. To maintain the same outflow, many borrowers extended the tenure of EMI payments. In some cases, the borrowers took home loans with a tenure that went beyond their retirement age.
How do you handle such a situation? In this article, we will discuss some of the ways to repay a home loan.
Use Your Retirement Corpus
The simplest way is to dip into your retirement corpus and pay the remaining home loan. This is quick and without any worries in the future. However, the drawback is that if the remaining amount is high, you may face problems in future if a significant part of your corpus goes for repayment. In old age, your other needs go down but medical expenses might go up. The corpus comes in handy for any eventuality.
Start A Systematic Withdrawal Plan (SWP) To Pay For The EMI
If you have a significant investment in mutual funds, you can set up SWP to pay the EMI after retirement. The portfolio will generate a return which will reduce your burden. The important point here is to select the right portfolio of funds. For example, if the market is bullish, a portfolio of equity-oriented mutual funds can create better returns and can reduce your EMI load. In a bearish market, debt funds can be used. It is advisable to contact a financial advisor on mutual fund investment.
Use Non-Essential Assets Which Can Be Monetized
There might be many artefacts, heirlooms, or assets which are not needed post-retirement. It is better to monetize them and use the proceeds to repay the home loan. This will reduce the burden on your liquid assets which can be utilized for other purposes. You can sell old precious metals like gold or silver lying in your vault, to clear your loan.
Protect Yourself Financially By Taking The Right Insurance
You must opt for comprehensive health insurance. This will protect your corpus from taking a big hit in case of large medical bills. Also, get sufficient size of life insurance cover to avoid financial stress on your spouse due to an outstanding loan on your untimely death.
Finally, Ask Your Heirs To Pay For It
After all, the heirs will finally get the asset. They should come forward and ensure that assets are paid fully. If you are still finding it difficult to manage the EMIs, you may shift to a smaller rented home and put your existing home on rent and use the money saved thus to repay the loan.
The author is a Financial Journalist