So you have finalized your home! So far so good… Finding the right Home Loan is the next thing in your mind. The interest rate on home loans is one of the primary concerns and deciding factors when finalizing a home loan. There has been a continuous reduction in interest rates by RBI to boost Real-estate sales.
A small difference in the interest rates offered will make a huge difference for you since buying a home is a big investment.
But if you are still in search of the right property take a look at How to find the right property in 6 steps.
Let us throw light on some of these smart ways that can help you reduce the interest rate on home loans.
- Shorter Home Loan Duration
- Pay Extra EMIs
- Pay Off Extra Annually
- Get Your Home Loan Refinanced
- Shift to Marginal Cost of Funds Based Lending Rate.
1.Shorter Home Loan Tenure
Choose a short tenure with the EMI you can afford to pay without much burden. Although going for a shorter tenure will increase the EMI amount, this will certainly ensure that your principal amount is paid off earlier. Since interest rates are calculated on the outstanding principal amount, payment of principal amount earlier will help in the reduction of interest to be paid as well.
2.Pay Extra EMIs
Well, it may be a little difficult initially, but try to pay extra EMIs if you really want your home loan to be cleared earlier than you expect. Paying EMIs with an extra amount monthly or quarterly will also help in the reduction of your principal amount and thus the interest in turn.
For instance, if you take a home loan of ₹27,00,000 (Twenty-seven Lakh Rupees) at 7.5% for 20 years tenure, Your monthly EMI will be ₹21,751.
But by paying ₹3,000 monthly as extra EMI your loan can be closed 5 years (15 years tenure) earlier than expected and you can save up to ₹7,00,000 (Seven Lakh Rupees).
3.Pay Off Extra Annually
Just like paying monthly extra EMI’s you can pay off extra annually. Once you get a salary appraisal or bonus from your job or business, pay off a certain amount to your home loan. This will reduce the principal amount and of course the interest on your loan.
Consider the same scenario as above by paying off ₹50,000 annually as extra EMI your loan can be closed 6 years (14 years tenure) earlier than expected and you can save up to ₹9,00,000 (Nine Lakh Rupees).
Check your repayment scenario using this EMI Calculator.
4.Get Your Home Loan Refinanced
Keep an eye on the interest rate on home loans prevailing in the market. You may come across loans with lower interest rates offered to you by the current lender or by other leading banks based on the repayment records.
This is when you can switch to a different bank where they will take over the outstanding amount at better interest rates. However, before switching to another lender, you must check all the terms & offers attached to it. Check these Factors to consider before shifting lenders.
Make sure that savings made from a lower rate of interest are not lower than the cost of switching to a different loan provider, with a lower interest rate on home loans.
5.Shift to Marginal Cost of Funds Based Lending Rate
Since May 2016, all banks shifted to MCLR or marginal cost of funds-based lending rate from the base rate. This step was taken to help borrowers benefit from any change in home loan interest rate. While applying for any loan that offers low interest rates, please make sure you avail of the best offers in the market.
We hope this article has given you some great insights on saving huge with these smart ways to Reduce Interest rate on Home Loans. Share your feedback in the comments.