repaying home loan debt can be a lengthy process that may take up to 25 years to pay off completely. if you do not make prior planning, the equated monthly installments (EMIs) of your home loan can put severe stress on your monthly budget for a long period of time. remember, your home loan EMI depends on three major factors - principal amount, rate of interest, and the tenure of the loan. you need to find the right balance of the loan amount, interest rate, and tenure to repay your home loan debt comfortably.
if you are planning to apply for a home loan, consider these 7 important tips to reduce the interest payable on your loan:
1. keep loan tenure short
as mentioned above, the home loan tenure is one of three primary factors that determine how much interest you would pay on your loan amount. most of the time people take home loans for a longer tenure to reduce the monthly EMI payable, however, in the long run, you end up paying more interest. you can use the CRED home loan calculator to see for yourself how the interest rate can affect the overall interest payable on your principal amount. So, before you apply for a home loan, select the loan tenure carefully so that you don’t end up paying higher interest against your principal amount.
2. prepay or part pay your loans whenever possible
most of the time, banks and NBFCs don’t charge prepayment or loan foreclosure charges on floating interest rate home loans. so, if your home loan is on a floating interest rate, you should try to make prepayments whenever your financial conditions allow. during the first few years, a larger part of your home loan EMI goes towards the interest payment, and the rest is used to make the payment towards the principal amount. making frequent prepayments will substantially reduce the principal amount and therefore the total interest payable would also decrease. however, some lenders may charge prepayment penalty on fixed interest rate home loan prepayment. you are advised to check with your lender to know more about the prepayment charges before you take the loan.
3. compare home loan interest rates
it is very important that you compare different types of home loan interest rate offers and do proper research on loan products before deciding to go with a particular product or lender. you can compare the home loan interest rates on various third-party websites or visit the official website of the lender to get more details on the rates and other charges levied by different lenders. by comparing home loan interest rates offered by various lenders you can get the best deal on home loan interest rates and save a big amount on interest payable.
4. home loan balance transfer for lower interest rates
some lenders offer loan balance transfer facilities for those individuals who have already taken a home loan and have started making prepayments against the loan. if the interest rate charged by your current bank or lender is higher compared to the interest rate offered to you by another bank or lender, you can transfer the remaining principal amount to the other bank or lender to lower the interest rate. however, it involves file transfer charges, and you also need to get clearance from your current lender to transfer the remaining loan balance to another lender.
5. pay more as the down payment
most of the banks and housing finance institutions offer home loans up to 75% to 90% of the total value of the property and the rest 10% to 25% you have to finance from your own pocket. if you have surplus funds at your disposal, it's always better to make a larger down payment instead of just 10% or 25%. the higher you pay as a down payment, the lower is the principal loan amount, which directly reduces the overall interest payable to pay off the home loan debt.
6. maintain a good credit score
most lenders prefer customers who have a good credit score to make sure the loan amount can be recovered on time. if you have a high credit score, say more than 700, there are high chances that the banks or lenders may offer you preferential interest rates for home loans. if your credit history is not good, then you may have to negotiate with the concerned lender provided you have a good business relationship with the lender. you can also keep a close eye on festive offers where lenders offer lower interest rates to attract more customers.
7. increase your EMI
if you have taken a home loan from a lender who allows you to revise your instalment annually, you should opt for a higher EMI if your income increases. increasing the home loan EMI will reduce the tenure of the loan and therefore the interest payable against your home loan will also come down substantially. but you need to check with your lender whether they provide such a facility or not.
apart from the above-mentioned points, it is important to make sure that you read the terms and conditions of the loan offered by the lender and also have details on all other fees or charges before signing up for the home loan. now that you know all the possible options to reduce your home loan interest burden, use the CRED home loan calculator to figure out the best deal for yourself.
CRED home loan calculator