An important consideration when selecting the finest home loan is the interest rate. Given that a home loan’s maximum payback length is 30 years, the outlay on interest alone may be double the loan’s principal, which can be a significant financial hardship for the borrower.
You will have to pay more than twice the principal amount as interest over a 30-year period for a home loan of Rs. 50 lakhs. Given that the EMI payments total a sizable sum, the debt is undoubtedly burdensome. How then may one lower the annual interest load after taking out a home loan with such requirements?
Higher down payment
Your loan load may be affected by your down payment. As you will only be paying interest on a smaller amount if you make a larger down payment, you can significantly lower your outlay for interest payments.
Depending on the applicant’s credit history and relationship with the lender, the down payment range may change from lender to lender. You might choose to pay more than the minimal down payment requirement, which would lower the interest cost of your home loan.
A home loan can be repaid in full in 30 years. You might tend to choose a longer repayment term for your house loan in order to pay less in monthly installments. Although it might provide you with some short-term respite, you will end up spending a lot more in interest over time. Select a tenure that will allow you to pay more of the principal and less of the interest. To enjoy lower interest payments for a smaller loan amount, it is best to choose a term within 10 years.
Using credit score to get lower interest rate
When you apply for a home loan, the lenders assess your credit score to determine your trustworthiness. Your credit score is used to calculate the interest rate. A good credit score is one that is 750 points or higher. A benefit of having a high credit score is being able to obtain loans with cheap home loan interest rates. You can work out a deal with the lender to get a low interest rate and lessen the burden of the home loan.
Prepayment and part prepayment
After the lock-in period, which could last up to a year, is over, the majority of banks allow you to pay back your home loan in full or in part. As you advance in your profession, you can receive a one-time bonus or a respectable raise as a result of a promotion. The burden of interest might be lessened by applying the excess funds to the home loan’s principal repayment.
If you chose a floating rate of interest, you are only exempt from fees if you prepay all or part of your home loan. On loans with a set rate of interest, there is a prepayment penalty of a certain percentage. It may represent as much as 4% of the outstanding principle sum.
Choose the maximum EMI amount you can
In addition to relieving your debt load, paying off your home loan early can lower your monthly interest payments. Set aside a significant portion of your income for repayment to shorten the payback period and lower the total interest paid.
Transfer your home loan to another bank
You can search for a lender who can provide you with the same loan at a lower interest rate if you took out your house loan at a higher interest rate and are paying a significant amount of money just in interest. This is known as a balance transfer for a home loan. To attract more customers, most banks give you this choice. Switching, however, is only advantageous if you do it at the beginning of the payback cycle. You would have already paid a significant amount of interest at a later stage, making the switch unprofitable. Additionally, there is a percentage cost associated with transferring the loan and repayment charges with the current lender.
Step up repayment facility
The majority of lenders provide this option, which allows you to adjust your EMI annually in accordance with your income. This choice may enable you to pay off the loan more quickly and hence pay less interest. In these situations, there is no possible moratorium period, and the EMI payment starts the first month after taking out the home loan.
A home loan is a long-term financial commitment that calls for a lot of commitment and responsible credit behavior. You can use the advice above to lower the amount of interest that is charged on your home loan. In the interim, watch out that your efforts to settle the home loan sooner don’t have an impact on your family’s everyday spending.