A Home Loan is most likely the biggest financial responsibility you’ll take in your life owing to its long repayment period. And borrowers are constantly looking for ways to minimise their Equated Monthly Instalments (EMIs). Imagine putting a big chunk of your salary for a long period! It can be exhausting both financially and mentally. So, strive to lower Home Loan interest rates whenever you can.
You can reduce your interest rate before and after taking out a Home Loan. And it can be done when you follow simple guidelines.
Lower rates mean less burden and you can also pay off the loan faster and more efficiently. The most obvious thing you can do to reduce the Home Loan interest burden is to choose a bank with interest rates that best suits your situation.
So if you are getting a Home Loan or already have a loan, keep these seven tips in mind to lower your repayment burden.
Shorter Term Lesser Burden:
As previously stated, loan tenure is a key element influencing the interest you pay on your loan. Longer tenures, such as 25 to 30 years, reduce the monthly instalments, and shorter tenures, such as 11 to 14 years, minimise the overall interest paid.
By using a Home Loan EMI calculator, you can see how changing the tenure can impact your repayment burden. You can do it yourself without any assistance. To use the calculator, you need to fill in three variables; the loan amount, the interest rate and tenure. You can see the difference a shortened tenure makes to how much you have to pay.
Before you sign up for a loan, many experts advise applicants to carefully consider the duration so they don’t end up paying more.
Prepayments are an option:
Banks do not charge prepayment or loan foreclosure fees on floating rate Home Loans. So here’s an idea, try to make prepayments on Home Loans from time to time, if you can. This is because, during the initial few years of your tenure, you pay more towards the interest than you do toward the borrowed loan.
Regular prepayments significantly reduce the principal amount, consequently reducing the total interest paid. It should be noted that banks do charge a fee on fixed-rate Home Loan prepayments. As a result, it’s a good idea to check with the bank before starting with prepayments.
Before selecting a Home Loan and a bank, you should conduct thorough research on loan terms and compare rates others are offering. Using a Home Loan Interest calculator will give you a more detailed view of the rates. As a result, it’s advisable to examine home loan interest rates from various banks before deciding on a bank or Home Loan package.
Balance Transfer is an Option
A Home Loan balance transfer allows you to change your current lender to someone offering a lower interest rate. If your interest burden is unbearable and even prepayment can’t help you, transfer the remaining principal amount to another bank.
Increase Down Payment
You contribute 10% to 25% of the property cost. This amount is not financed by the Home Loan. However, rather than paying the least amount possible, contribute extra from your pocket as a down payment. The more you pay upfront, the lower the loan amount, which minimises the interest you pay.
Better Credit Score
It is common knowledge that banks prefer customers with a solid credit history. They provide preferential rates to returning customers or those with a solid credit history. So applicants with a credit score near 800 might be able to acquire better loan rates. As a result, being a responsible borrower and making all your repayments on time will most likely get you lower interest rates on your loan.
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Banks allow you to adjust your monthly payments. So in case of a job change or a larger wage, choose a higher EMI. And, when the loan’s tenure is short, the interest you pay will be significantly reduced.
- Switching from a fixed-rate loan to a floating rate can also be advantageous. Keep in mind that the interest obligation for a fixed interest rate is frequently higher than that of a floating rate. With high Home Loan interest rates, switching may be a wise choice.
You now know how you can lower your Home Loan interest rate burden. Shop around for the best interest rate and compare interest rates from multiple lenders to find the best deal. Make a higher down payment, choose a shorter loan term, improve your credit score and do other things mentioned above.
If you already have a loan, make prepayments if you can. Because making additional payments towards your loan can help reduce the interest paid. Consider switching to a floating rate, consider balance transfer, etc.
It’s important to evaluate your financial situation before making a decision regarding your Home Loan.