Ways to Reduce Interest Rate on Your Home Loan
How to reduce home loan interest?
- To make a low-interest payout, minimize the interest rate of your loan. If you have already taken the loan, you can move ahead and refinance your loan at a very lower interest rate.
- Always try to make short-term loan tenure. As a short loan tenure helps to complete the loan repayment faster which results in very low and affordable interest cost. As interest rate is calculated on the principal amount which is outstanding, as soon as you repay the principal amount it leads to getting less interest payout.
- If paying more than your EMI is not a burden then you can pay more as the surplus amount will not only help you to reduce your principal amount which is outstanding but also help in your interest
- You can pay one more additional EMI every year at the end than the number of usual EMI as this works out as the most effective trick to reduce your loan tenure, and the interest burden will get reduced significantly,
- Always have a check on low-interest rate schemes
- Increase the down payment: Increasing the down payment when taking a home loan can lower the principal amount. A lower principal amount leads to low interest and EMI payments.
- Home loan Prepaid: If there is any chance to prepay a part of the home loan before the end of its tenure, then it can help in reducing the overall interest payments. Banks may levy a prepayment penalty fee for such kinds of payment.
- Annually increasing the EMI: With the increase in net income every year, a salaried employee can choose to increase his or her home loan (annual) EMI by a small percentage in order to save interest. The percentage of increase has to be determined based on the increase in the person’s net income.
Will refinancing of the existing home loan help to reduce interest burden?
A low home loan interest rate includes a low EMI. Also to reduce the home loan interest rate, borrowers usually go for an option for refinancing the outstanding loan amount. Refinancing home loans can be challenging as the loan paid before the tenure may include additional fee and other service charges by the lender can result to a high amount which may result in reduced interest savings.
To sum up, do not hike the rate which has been quoted while taking a fresh home loan or opting for balance transfer. It’s not, particularly if you are a first-time home loan-taker, either the new borrower or an existing one, being cautious of some mistakes that borrowers tend to make.