When you don’t have a proper plan, your monthly budget may be severely stressed by your home loan EMIs (equated monthly instalments). Keep in mind that the main factors affecting your monthly instalment are the size of your loan, the interest rate on it, and the tenure of the loan. Sometimes poor planning results in you paying more toward your loan.
Therefore, if you’re considering or have already applied for a home loan or a loan against property, keep in mind these seven crucial suggestions to lower the amount of interest charged.
- Go for a Shorter Tenure
As previously mentioned, your loan tenure is one of the main factors determining the interest you must pay. Though shorter tenures, like 10 to 15 years, will help lower the overall interest payable, longer tenures, like 25 to 30 years, will reduce the monthly instalment amount. Using a home loan EMI calculator, you can see how your interest gets significantly reduced for loans with shorter terms. Therefore, to avoid paying higher interest on your loan, carefully consider the tenure before applying for a loan.
- Prepayments Are a Good Option Too
Lenders do not assess prepayment or loan foreclosure fees on floating rate loans. Therefore, if you have taken a loan, try to make prepayments occasionally. This is because, during the initial years of your loan, you pay a higher amount toward interest than you do toward the principal. Therefore, regular prepayments will significantly reduce the principal balance and lower the total interest. However, keep in mind that lenders usually charge a certain percentage for early repayment of fixed-rate loans. Therefore, you should inquire with your bank or lender about potential prepayment fees.
- Compare Interest Rates Online
Before choosing a specific product or lender, you must research loan products thoroughly and compare rates, whether home loans or loans against property. You can see a clearer picture of the rates and other fees charged by various lenders on several third-party websites. It is, therefore, best to compare the house loan interest rates offered by all banks before settling on a specific bank or home loan product.
- Home Loan Balance Transfer Is an Option
You can opt for balance transfers after you’ve begun making prepayments on your loan. You can transfer the remaining principal balance to a bank or lender with a lower interest rate if you believe the interest rate charged by your current lender is a little on the higher side. Balance transfers, though, ought to be your last option.
- Pay More as a Down Payment
Banks and other financial institutions typically finance 75% to 90% of the total value of the property. You must pay between 10% and 25% of the property’s remaining cost. However, paying more from your pocket as a down payment rather than the least amount possible is preferable. The loan amount will be smaller if you make a larger down payment, which will directly lower the interest you must pay.
- Look for Better Deals
It is common knowledge that lending institutions favour customers with strong credit histories. Therefore, banks frequently offer preferential rates to those with a good credit history or existing customers. So, if your credit score is 750 or more, you might be eligible for loans with lower house loan interest rates. If not, you can negotiate the interest rates if you have a good working relationship with the lender. Aside from that, pay close attention to seasonal promotions. Banks frequently lower interest rates during the festive season.
- Increase your EMI
Some lenders give you the option to revise your instalment once a year. Therefore, if you change jobs and receive a higher salary, you can always choose higher EMIs to shorten your tenure. Additionally, once the tenure is shortened, the total interest you must pay on your loan will drop significantly. Check with your lender to see if they offer such choices.
To lower the interest cost, consider these factors while applying for a home loan or loan against property.