How to Save More on Home Loan Interest?

With rising prices of residential properties all over India, it is no longer easy for a common man to purchase a new property on the down payment. In such a situation, availing a Home Loan is the best option available. A Home Loan allows you to realise your dream of becoming a homeowner without any delay.

With low interest rates and multiple options available from different financial institutions, Housing Loans are rising in popularity with prospective homeowners, particularly among the first time home buyers. In order to streamline the entire process of buying a residential property, lenders are now accepting applications for Home Loans through multiple channels, online as well as offline.

About Home Loans

As the name suggests, a Home Loan is a financial product designed, especially for prospective homeowners. With quick processing and repayment tenor extending up to 30 years, Home Loans offer you an ideal opportunity to purchase a residential property without stretching your finances.

As financial institutions offer LTV (Loan to Value) ratio of up to 90%, you only need to arrange for the down payment and repay the loan in EMIs over the loan tenor. Moreover, a Home Loan is one of the most cost-effective options for purchasing a residential property as the Home Loan Interest Rates start at a modest price starting at 8.50% per annum. Though, it must be noted that money borrowed as a home loan, can only be sued to purchase or renovate a residential property.

Like all other loans, Home loan EMIs consist of two portions principal and interest. The repayment schedule is designed in such a way that during the initial period, the interest component is higher than the principal component in the EMI. This trend changes in the latter stages of the repayment tenor when the principal component is higher than the interest component.

How to save more on Home Loan Interest?

As you know, the interest component is basically a cost that you have to bear for the money you have borrowed as a bank loan. You must, therefore, avail every opportunity available to save on the Home Loan interest rates that you can get.

Following are some tips that will help you save more on your Home Loan interest: –

• Reduced Repayment Tenor: The interest cost you have to bear is directly linked to the repayment tenor you have chosen. Therefore, longer is the repayment tenor; higher is the interest cost and vice versa. So, do not opt for the maximum repayment tenor just because it is available. Instead, opt for a repayment tenor which offers you an EMI that you can easily afford, even if it means a shorter repayment tenor. This will allow you to repay your Home Loan in a quick time and reduce the interest cost you have to bear.
• Balance Transfer: If you have been repaying your EMIs on time and have a good CIBIL Score, many other financial institutions will offer you lower interest rates on balance transfer. As the amount availed as a Home Loan is substantial, even a slight reduction in the interest rates will translate into substantial savings for you. Though, before opting for a Home Loan Balance Transfer, make sure you compare the APR of both the loans and other terms and conditions. You must also consider the foreclosure charges applicable, if you exercise this option.
• Pay more EMIs: Most financial institutions allow the borrowers to make pre-payments against their Home Loan, without incurring any penal charges. For instance, you need not incur any additional charges on making pre-payment against your PNB Housing Finance Home Loan. If you have surplus funds or have received a substantial cash gift from somewhere, you must use this opportunity to pay more EMIs towards your Home Loan. As most lenders charge interest on reducing balance basis, this will allow you to repay your Home Loan before the scheduled date and therefore save on your interest cost.
• Higher down payment: Again, do not avail the maximum amount available just because you are eligible for it. Remember, a Home Loan is still a form of borrowing, and you have to bear an interest cost on availing this service. So, if you have idle funds with you, you can use them to make higher down payment against the loan. Therefore, you will need to borrow a lesser amount and thereby will end up saving on the interest cost.
• Increase the EMI: If you are salaried personnel, then your salary will increase on a periodic basis. This increase will leave you with more money to make your home loan payments during the course of loan tenor. You can, therefore, increase the amount of EMI that you pay every month. It will allow you to repay your Home Loan earlier and therefore, save on the interest cost that you have to bear otherwise.
• Switch to MCLR: If your Home Loan was sanctioned after April 2016, then it will follow MCLR (Marginal Cost of funds based Lending Rate). MCLR allows you to avail the benefits of changes in interest rates. Though, switching to this facility requires you to pay a conversion fee along with taxes to your lender. As the conversion fee is a percentage of the outstanding Home Loan amount, you must compare the benefits with the cost before taking a final decision.
• Home Loan Overdraft: With your Home Loan, you generally also get a facility for Home Loan Overdraft. Under this facility, you can deposit any spare money you have to the Home Loan account, over and above the normal EMI. If you do not withdraw this amount, it is regarded as a pre-payment towards the loan and reduces your outstanding amount, lowering your interest cost.

A Home Loan is an excellent facility offered by financial institutions to help you purchase your abode, but it is a significant financial liability with an interest cost and must be repaid as soon as possible. Even if it means you are cutting down on your expenses to generate more funds to pre-pay the loan, you must do it.

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