Your home loan EMIs could put a significant strain on your monthly budget if you don’t have a plan in place. Remember that the size of your loan, the interest rate, and the term of the loan are the primary variables affecting your monthly payment. Poor planning can occasionally cause you to pay extra toward your debt. Therefore, bear in mind these 6 essential recommendations to reduce the amount of interest paid whether you intend to or have already gotten a home loan.
Look for better offers:
It is common that lenders favour clients with strong credit histories. For those who have an excellent credit history or are current customers, banks frequently provide preferred rates. So, if your score is near 800, you can be eligible for loans with lower interest rates. Therefore, there is a chance that you will be given lower interest rates on your loan if you have been a responsible borrower and have made all of your repayments on time. If not, providing you have a good working relationship with the lender, you can negotiate with them. Aside from that, pay special attention to holiday promotions. Interest rates are frequently lowered by banks over the holiday season.
Choose a short term debt:
Your loan tenure is one of the main elements determining the interest you must pay, as was previously indicated. Though shorter tenures, like 10 to 15 years, may assist lower the overall interest payable, longer tenures, like 25 to 30 years, will reduce the monthly instalment amount. Using a house loan EMI calculator, you can see for yourself how the interest is significantly lowered for loans with shorter terms. In order to avoid paying greater interest on your loan, carefully consider the tenure before applying for a loan.
Prepayments Are a Smart Move Too:
Lenders do not charge prepayment or loan foreclosure costs on floating rate loans. As a result, if you have a debt, try to prepay it once in a while. This is because you pay more toward interest than you do toward principal during the first few years of your loan. Regular prepayments will drastically lessen the principal balance and overall interest. Keep in mind, though, that lenders do impose a predetermined fee for the early repayment of fixed-rate loans. Therefore, it is recommended to ask your bank or lender about any possible prepayment penalties.
Transfer a mortgage’s remaining balance:
The subject of balance transfers doesn’t come up until you start making loan prepayments. If you think the interest rate your current lender is charging is a touch on the high side, you can transfer the remaining principal balance to a bank or lender with a reduced interest rate. Balance transfers, however, must be your very last resort. If payments are missed on balance transfer-based loans, there are harsher consequences.
Make a larger down payment:
Banks and other financial institutions frequently provide financing for 75–90% of the property’s total worth. 10% to 25% of the property’s remaining cost must be paid by you. However, paying the smallest amount feasible as a down payment is better to paying more out of your own pocket. A bigger down payment will result in a lesser loan balance, which will immediately lower your interest rate.
Increase your loan EMI:
Some lenders provide you the option to change your instalment once a year. Therefore, if you changed jobs and received a greater pay, you can always choose higher EMIs to shorten the tenure. Additionally, once the tenure is shortened, the total interest you must pay on your loan will drop significantly. Consult your lender to see if they offer such choices.