Most of us dream of owning a home in our favourite city where we can build a future with our family and create new memories. But purchasing a home isn’t as easy for most people. It will be one of the biggest investments you make in your life.
You don’t just need to put down a hefty down payment, but you will also be paying regular Equated Monthly Installments (EMIs) for years to come. Since the principal amount itself is very large, a lower interest rate can make all the difference.
After all, lower interest rates means lower EMI. For instance, if you have a home loan of Rs 50 lac and the home loan interest rate reduces from 10% to 9% per annum, then the EMI will get reduced from 45,435 to Rs 41,960. With a loan tenure of 25 years, you will be able to save over 10 lacs with a reduced interest rate.
Here are some ways to easily decrease interest rates on your home loan and save money:
Though a shorter tenure for the loan will lead to a higher EMI cost, it will help you make sure that the loan amount is paid earlier. After all, a longer tenure means you will end up paying more interest.
The interest rates are calculated according to the principal amount, and paying the amount earlier will help you reduce the total interest that you pay.
That is why while estimating your monthly EMI, adjust the loan time period according to the maximum amount that you can pay every month.
Your monthly EMI for the the home loan comprises of two parts -- the principal amount and the interest that is charged on the borrowed amount of money. In the first few years of loan repayment, you end up paying more towards the interest than the principal. By making regular prepayments whenever you can, it’s possible to reduce the interest owed and the total interest that is levied over the payment.
Most banks allow you to prepay your home loan EMIs without any extra charge. Whenever you get an annual appraisal or bonus from the company, you can use that towards your loan repayment to lessen the burden for you in the future.
All the home loans taken after April 2016 follow the Marginal Cost of Funds based Lending Rate (MCLR) which allows the borrowers to take advantage of the change in interest rates. MCLR is subject to taxes and a conversion fee, which is a percentage of the outstanding loan amount that is yet to be paid.
You can refinance your home loan and change your loan provider if you find better options in the market. You should always keep checking the interest rates being offered by different banks. In case you do come across across loans with lower interest rates than your current one, you can always move.
Though its important that you check all the terms and conditions attached to refinancing and the new lender before you sign on the dotted line. You should make sure that the savings you get from the lower interest rate are more than the actual cost of switching. Otherwise, it is not worth refinancing. You would go through a lot of paperwork for no profit.
Instead of paying your EMIs at the end of every month, which can often lead to delays and additional charges if you end up paying it late, it’s best to pay your EMIs right at the start of the month.
Also, instead of manually transferring your EMi every month, you can automate payments from your bank account.
Home loan payments are expensive, but that doesn’t mean there is no room to decrease your EMIs. You can take several steps, as mentioned above to significantly reduce your home loan burden.