Ways to Reduce Home Loan Interest Amount on Home Loan
Home Loan
A home loan is likely the most important financial obligation a person will face in their lifetime. It’s also the debt with the most time to repay. As a result, most home loan borrowers are always looking for ways to reduce their monthly equivalent installment (EMI) payments.
You may end up paying extra on your loan due to poor planning. So, if you’re considering getting a house loan or already have one, keep these 5 vital recommendations in mind to lower your interest payments.
Here are some ways in which you can reduce your loan interest amount
1. Opt for the right loan tenor
Before choosing the final loan duration, give it some attention while deciding on the house loan tenor.
There are two methods for estimating the length of a house loan, based on your budget and requirements.
You will pay a large EMI if you choose a short-term home loan. Although this will lower home loan interest rate, deferring a large EMI might put a hardship on anyone’s finances.
On the other side, if you choose a long house loan term, you will wind up paying a significant amount of interest money towards the conclusion of the loan term, even if you can pay a manageable EMI amount every month.
You should ideally choose a loan tenor that does not put a strain on your budget or burden you with a high interest rate.
Find a happy medium and make home loan repayment a joy. Use a home loan EMI calculator to estimate your EMI before applying for a loan to ensure you’re on the correct track.
2. Begin making investments now
It would be incredibly useful to invest in the proper places before taking out a home loan. You can put the money towards a down payment on a house.
If you’ve already paid a large sum at the start of your house loan, the amount you’ll borrow will be less, so the interest rate will be lower.
3. Make a point of paying as many prepayments as you can
Did you know that the first few EMIs you pay go toward the interest on your house loan?
That means that making frequent prepayments during the first few years of your house loan can help you save a lot of money on interest.
If you’ve gotten a bonus or have a new source of income, set aside some of it for your house loan prepayments.
You can also shift from a fixed rate to a floating interest rate. This is undoubtedly one of the most effective methods for lowering home loan interest rates.
What’s the best part? If your house loan interest rate is floating, your lender will unlikely charge you a prepayment penalty.
The interest rate on loans can be either variable or fixed, depending on the rates. On floating-rate loans, lenders do not levy prepayment penalties, so you can make numerous prepayments on time to reduce the principal amount, lowering the overall interest.
However, this is not the case with fixed-rate loans. In such cases, lenders charge a set percentage on prepayments.
Therefore, you should always check with the house loan providers to see what prepayment penalties you might have to pay.
4. Make use of the RBI’s debt restructuring services
The continued pandemic has put many individuals in a financial bind, making it difficult to make ends meet.
Many of these debtors are momentarily unable to pay their EMIs. Borrowers in this situation might approach their lender and request a moratorium.
A moratorium suspends EMIs or principle payments for some time, following which the loan is restructured to a more acceptable repayment schedule.
Furthermore, while applying for a moratorium, keep in mind that interest will continue to accrue during the relief period, increasing the total amount you owe.
5. Use the transfer your balance method
The concept of a home loan balance transfer is introduced after the borrower has begun making loan installments.
If you discover that your home loan provider’s interest rate is higher than that of other lenders, you can transfer the remaining loan balance to a bank or provider with lower interest rates.
A balance transfer, on the other hand, should be one of the borrower’s last options because it can result in larger penalties in the event of late payments.
By using these methods and deploying careful loan planning, one can easily reduce their home loan interest amount.
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Category: Loans
