Home Loan Interest rate is an important factor to consider while availing a home loan. The interest rate is an additional amount charged by the bank on the principal amount. Home loan interest rates are different for every bank and non-financial institutions. My friend has taken a home loan before 15 years. The principal amount of loan was 25 Lakh. He regularly paid EMI but not opted for any prepayment. At the end of 15 years, when he calculated he had totally paid 48 Lakh. The additional amount paid by him was due to a higher interest rate. A higher interest rate means higher outgo.
A small difference of even 0.5% to 1% makes a huge difference in the total outgo of your loan. That’s it is advisable to go for a lower interest rate loan. However, under a floating rate home loan, you don’t have control once you have taken a home loan. The interest rate can be increased at any time.
So, if you are planning to opt for a home loan or already have taken a home loan and worried about the increasing interest rate or total outgo. Here are proven ways to reduce your home loan interest and save a lot of money.
How to Reduce Home Loan Interest? – 7 Proven Tips
#1 Duration of Home Loan
The first way to reduce your home loan interest is by reducing the duration of home loan. A home loan is generally offered for the tenure of 25 years, 20 years and 15 years. It is advisable to go for a shorter duration of the loan. A shorter duration home loan increases your EMI burden at the initial stage but it will really help to reduce overall interest payment.
#2 Pay More as Down Payment
Banks generally provide finance up to 85%-90% of the total value of the property. You need to contribute the remaining cost from your pocket. When you are opting for a home loan it is advisable to pay more from your pocket as a down payment. It will automatically reduce your loan amount and directly reduce the interest rate payment.
#3 Prepayment of Home Loan
Another way to reduce your home loan interest rate is by doing prepayment of the home loan. A prepayment of home loans reduces the principal component of your loan. Making frequent prepayments on the home loan reduces the principal amount drastically, thereby reducing the total interest rate. The prepayment charge applicable to a home loan is NIL.
#4 Interest rate reduction by Fee
A number of banks and HFC offers a facility to reduce the interest rate by paying a fee. If your bank or HFC is also offering a similar facility you should go for it. Bank will charge a small amount as fees and reduce your overall interest rate. It is a very good option to reduce your home loan interest rate.
#5 Increase your EMI
The next option to reduce your interest rate burden is either increasing your EMI. As soon as your monthly income increases you should increase your EMI. A small increase in EMI makes lot of difference in the interest out go. As increase in EMI, affects your principal component and you will able to close loan faster.
#6 Compare rates online
You should do proper research about loan products available in the market and offered interest rates. You can use third party websites that gives readymade comparison of interest rates. In addition to interest rate please check for an additional fees and terms and conditions.
#7 Home Loan Balance Transfer or Switch
Home loan balance transfer is very good alternative to reduce home loan burden. However, you need do a proper cost benefit analysis before switching loan. See the image given below for the example.
If you feel that interest rate charged by your current lender is very high or your lender is increasing interest rate frequently, you can opt for Home Loan Balance Transfer. In this case, you need to transfer the principal amount to another bank or lender at the lower interest rate.
As per me it should be last option to reduce interest payment. This option involves lengthy process and require lot of efforts from your end.