Buying a home is a dream come true for many people who pay high amounts off rent. But before you plan to book your home, it is prudent to do research so as to reduce burden while repaying your home loan. Equated Monthly Installment (EMI), and the tenure of the loan and the rate of interest helps in deciding the interest of the home loan. If these basics are forgotten , home loans can bring an excess burden of repayment on the borrower.
In this article, we will try to discuss several ways to reduce the burden of home loan interest.
Ways to Reduce Home Loan Interest:
- Go for a shorter loan tenure: A shorter loan tenure ensures that the buyer can make loan repayment faster and if loans are paid faster it results in lower rates of interest.A buyer must first understand the concept that paying out a higher amount does not necessarily mean thatincrease in the effective interest rate. When you think of an increase the total loan tenure it only results in the absolute interest pay-out. And the amount you pay finally increases with the increase in loan tenor.
- Check before switching: If you think of transferring your loan to a new lender, who is offering a lower interest rate, this might result in saving up a lot more money. Most of the banks now are prohibited from levying any foreclosure charges on home loans and the floating interest rates. However there are things to consider before you change the lender.Firstly, before opting for a change, check for the balance repayment tenure. If you have just started your home loan, the process of switching to a new lender might not be of much use or profit to you.
- Try paying a Higher EMI: If banks increases the rate of interest on a home loan, then to reduce the burden of interest the customers should opt for paying higher interest rate. This way borrower can avoid the total interest payment entire home loan duration. The best way to calculate EMI would be to keep the EMI below 50% of your net income. This way the borrower, if needed can step up and increase the EMI’s.Increasing the EMI helps to reduce loan tenure therefore ensuring that you can get rid of the loan as soon as possible.
- Regular prepayments if possible: The EMI for the home loan is made up of two parts: interest charged on the borrowed sum and the main amount. During the first few years of repayment, the payment made is more towards the levied interest and less towards the principal. So, during this time, it is prudent for the borrowers to make part prepayments by making the bestuse of your work bonus, salary hike, and other income. Most lenders like government and non-government financial institutions, allow the borrower to part prepay your home loan without charging any fees.
The potential buyer can try these hacks to reduce the interest on the home loans.