Home loan EMIs can put severe stress on your monthly budget if you have not chalked out a proper plan. Remember that your loan amount, the interest rate, and the loan tenure are the primary determinants of your monthly installment. Most of the time, due to poor planning, you may end up paying more against your loan. So, if you are planning to avail of a home loan or already have taken one, then consider these essential tips to reduce the interest payable.
Opt for a shorter tenure
The loan tenure is one of the primary factors responsible for the interest you need to pay. Though longer tenures will bring your monthly EMI payments down, in that case, you need to pay a higher rate of interest. On the other hand, shorter tenure will help reduce the overall interest payable. So, going for home loans with shorter tenure helps you a lot in saving your money in the long run.
Prepayments are a good option too
The financial institutions do not charge prepayment or foreclosure charges on floating rate loans. So, if you have applied for a loan, try to make prepayments from time to time. That is because, during the first few years of your loan, you pay more towards the interest compared to the payments made toward the principal amount. Making frequent prepayments will substantially bring down the principal amount, that will help you to reduce the total payable interest. However, note that the financial institutions do charge a certain percentage on fixed-rate loan prepayments. So, it is advised to check with your bank or other financial institution to know the prepayment charges that you may have to pay.
Compare interest rates online
You must do proper research before deciding on any financial institution. For this, you may cross-check and compare multiple loan offers and the interest rate offered across financial institutions. This will give you a clearer picture and make you get the best deal.
You can also go for a home loan balance transfer
A home loan balance transfer can also be a better option. It will help you to enjoy the benefits of low-interest rates and better flexibility. Most of the banks and other financial institutions are offering home loan balance transfer at competitive interest rates. Hence, it is advised to find the one that does that suits you the most.
Pay more as a down payment
Most of the banks and other financial institutions finance 75% to 90% of the total value of the property. You are required to contribute up to 10% to 25% of the remaining cost of the property in the form of a down payment. The higher you pay initially, the lower will be the loan amount, that will further directly reduce the overall interest on the loan.
Look for better deals
It is a well-known fact that financial institutions prefer customers who have a good credit history. Banks often roll out preferential rates for their existing customers or those who have a good credit history. So, if your score is 700 and above that, you will be eligible for getting lower interest rates on your loan. However, if you do not have an optimum credit score, in that case, you can negotiate with the concerned lender. Alternatively, you can also apply for home loans during the festive season.
Increase your EMI payments
Some financial institutions allow you to revise your installment annually. So, if you have switched your job with a higher salary, you can always opt to pay for higher EMIs to reduce the loan tenure. Once the tenure is reduced, the overall interest you need to pay against a loan will decrease. You need to check this with your financial institution whether they provide such options or not.