Reduce interest burden on your Home Loan: Are you fed up with the high interest rate on your home loan? If you feel that despite paying EMIs continuously for years, due to high interest rates, your home loan burden is not reducing as much as it should, then you can consider trying these methods. If you are able to reduce the interest rate on your home loan with the help of these tips, you will be able to save a lot of money during the entire tenure of the loan and your situation in terms of personal finance will become better than before. Here’re few tips:
Keep home loan tenure short
The total interest you will have to pay on home loan is also decided by the tenure of your loan. By taking a loan for 20, 25 or 30 years, the monthly EMI of the loan gets reduced, but the interest on the same loan has to be paid for a longer period. The effect of this is that the total amount paid as interest during 20, 25 or 30 years becomes much higher. Whereas, if a loan is taken for 10 or 15 years, then the monthly EMI on the same loan may be higher, but the total interest paid during the entire tenure of the loan reduces. You can also see how much the total interest burden reduces as the tenure decreases in a good home loan EMI calculator. That is, if you choose the tenure wisely while taking the loan, then the interest burden on you will be less.
Benefit in repaying home loan ahead of time
If you repay the home loan before time, you will be in profit. For this, apart from EMI, you can pay some additional amount in between directly into your loan account to reduce the principal amount. During the first few years of the loan, the interest component in the monthly EMI is higher than the principal amount. In such a situation, if any amount is paid as prepayment other than EMI, it is deducted from the principal amount. This not only reduces the debt rapidly, but also reduces the share of interest in the monthly EMI. This means that even after paying the same EMI, your loan will start reducing rapidly. One more thing, banks do not charge prepayment charges on floating rate home loans. But if your home loan is on fixed interest rate, then you may have to pay penalty on prepayment of the loan. Therefore, get information about this from the bank.
Ask the bank to reduce the interest rate
If the interest rate on your existing home loan is very high, you can request the bank to reduce it. Usually, the bank charges you a fee for reducing the interest rate, so you can use 'Home Loan Refinance Calculator' to estimate the actual savings by reducing the rate. You will find such calculators online.
Talk to other banks for lower interest rates
If the existing bank is not ready to reduce the interest rate of your home loan, then you can also try for balance transfer by getting information about the offers of other banks. If you are getting a much lower interest rate offer from some other bank, then you can transfer your loan. But before transferring the balance, make sure to know about all the expenses related to loan transfer including the processing fees to be paid to the new bank. There is benefit in home loan balance transfer only if after deducting all the expenses, you are saving money by transferring the loan to the new bank. Also keep in mind that sometimes banks give teaser rates on new loans, which may increase after one year. Keep this in mind when calculating potential savings.
