Consider using these 5 simple hacks to lower the interest payment on your home loan.
Most people who wish to buy a house are excited at the prospect of finally owning a home – but daunted by the prospect of taking a loan. Their fears are justified, however – balancing the EMI payments with the rest of the monthly expenses can become quite difficult!
However, you can take the sting out of the monthly EMIs, and indeed, the home loan amount itself, by taking a few simple measures to reduce the burden of interest repayment. Consider the following 5 ways to do so:
1: Choose a lower tenure. This is confusing for most people: they reason that if the loan tenure is lower, the interest rate will be higher. This is true to an extent, but with choosing a lower tenure of home loan, the point is to lower the absolute interest pay-out. This means that if you choose a lower tenure, you repay the loan much faster – the interest is calculated on the outstanding principal amount. So if the principal amount is repaid in larger EMIs, the absolute interest pay-out is lower, so the payment burden is reduced.
2: Repay larger amounts periodically. The EMI repays the loan every month, with each EMI accounting for principal + interest payment. While it is fine to allow the EMIs to repay the loan, it means that you end up paying a large amount of money to the home loan financing company. You can consider reducing the loan burden by periodically repaying larger sums of money (over and above the EMI) so that the principal is reduced faster. When the principal is reduced, so is the total interest payable on it. One way to repay larger sums is to save a part of your income every month. When the savings accrues into a large amount of money, you can use it as repayment money.
3: Increase your EMI every year. There is a chance that your income increases every year, to account for annual bonuses and increment. At the very least, most people’s income increases by about 10% every year. You can reduce the loan burden by increasing the EMI amount by about 5% every year, by using your increased income. A larger EMI means that you start paying back a larger amount of money to the home loan financing institution, and this results in a reduction in the loan interest burden.
4: Choose the lowest interest rate. The first and most basic step in reducing the interest payment on your loan, is to choose a home loan financing option with the lowest interest rate. You might need to do a lot of research before you find the best loan product – after all, the lowest interest rate does not automatically translate into the best loan! Other factors such as LTV (Loan to Value ratio), eligibility criteria, documentation process and loan disbursal process are equally important. Currently, premier housing finance companies like PNBHFL offer the lowest ever 8.5% interest rate on home loans.
5: Effect a loan transfer. If you find that interest rates have lowered but your current lender is not willing to cut your lending rate, then you can transfer your balance loan to another lending institution. It is simple enough to effect the home loan transfer from your current lender to another one that offers a lower rate of interest. When you effect such a transfer, you end up repaying less money as well – but do check processing fees and foreclosure fees (if any) before signing up.