Should You Use Your Annual Bonus To Reduce Home Loan Burden?
Those who pay EMIs (equated monthly installments) to pay off their home loan often find it difficult to manage their monthly expenses. While a large part of their take-home salaries goes towards the loan payment, the remaining amount is hardly enough to run the household. The situation gets even more critical if the borrower is also the sole earning member of the family. In a scenario such as that, saving money is no option. The only time such borrowers feel comfortable money-wise is when they receive an annual bonus from their employers.
While many use this money to fulfill some of their long-pending needs, others might like to use this sum to pre-pay a part of their home loan. By doing this, they could reduce the monthly burden or cut short the loan tenure — the choice is absolutely theirs. This could possibly be the most prudent way to spend your annual bonus, especially because borrowers can prepay their loans now without paying to pay a penalty for doing so, something they had to do earlier. However, take a moment to think before you use all this towards home loan repayment.
Do you have any savings with you that could be used in case of an emergency?
After the initial difficulties, a borrower gets accustomed to a certain lifestyle, as far as his finances are concerned. If he pays 60 per cent of his in-hand salary as home loan EMI and spends another 35 per cent in running the household every month, he would by and by learn to make adjustments accordingly. While reducing the monthly burden would be a brilliant idea, this hard-pressed individual would find it excessively difficult to handle a situation where he might be expected to use his savings. For those in a similar situation, it is only wiser to use the annual bonus to create a contingency fund.
Would the part-prepayment help you save?
This is another pertinent question that demands an answer. Take time and evaluate whether the corpus you are going to use to prepay your home loan would make any substantial difference to your monthly outgo, in case you plan to reduce the EMI amount. In case this is not so, invest your annual bonus into a channel where its value would increase by the time you receive your next yearly bonus. This process should be continued till a substantial amount is saved. You can now judiciously divide these savings, use part of it to prepay your loan and part of it could be kept as savings.
Are you comfortable today?
At times, we get too carried away by the notion of unburdening ourselves and lose sight of the fact that there are certain immediate necessities that need to our immediate attention. Before making plans of using your annual bonus in part-paying your home loan, look around and see if your immediate necessity is more pertinent. You are anyway doing tight-rope walk and deserve your movements of a break from it.