If you don’t have a suitable strategy in place, home loan EMIs (equated monthly installments) can put a significant strain on your monthly budget. Keep in mind that your loan amount, interest rate, and loan tenure are the key factors of your monthly installment. You may end up paying extra on your loan as a result of poor planning. So, if you’re considering or have already acquired a home loan, keep these 7 vital recommendations in mind to lower the interest payable. You will find more tips on how to reduce home loan amount and increase your savings.
How to reduce home loan amount- steps to follow
By reducing the home loan amount you will be able to pay it soon.
Opt for a shorter term.
One of the key elements influencing the amount of interest you have to pay is the term of your loan. Though lengthier tenures, such as 25 to 30 years, reducing monthly installment amounts, shorter tenures, such as 10 to 15 years, also reduce the overall interest due. As a result, it will be easier for you to pay the principal amount.
Using a house loan EMI calculator, you can see for yourself how the interest rate drops dramatically for loans with shorter terms. So, before you sign up for a loan, consider the tenure carefully to avoid paying great interest on your loan.
Prepayments are also an option
On floating rate loans, lenders do not charge prepayment or loan foreclosure fees. So, if you have acquired a loan, strive to make periodic prepayments. This is because, during the first few years of your loan, you pay more toward the interest than you do toward the principal. Making frequent prepayments will significantly reduce the principal amount, lowering the total interest.
However, It should be noted that lenders do charge a percentage on fixed-rate loan prepayments. As a result, it’s a good idea to check with your bank/lender to find out what prepayment fees you might have to pay to avail of this service.
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Online interest rate comparison
Before settling on a certain product or lender, you should conduct thorough research on loan products and compare rates. Several third-party websites can help you understand the rates and other fees charged by various lenders.
So, compare house loan interest rates from all banks first before deciding on a certain bank or home loan package. This will help you in lowering the loan amount and offer you the best deal on the purchase of a house.
A home loan balance transfer
There are many options available for you to reduce your home loan amount.
Balance transfers are available only once you have begun making prepayments on your loan. If you think your current lender’s interest rate is too high for you to pay, you can transfer the remaining principal amount to another bank or lender with a lower interest rate.
Balance transfers, on the other hand, should only be used as a last resort. Missed payments on balance transfer loans would increase penalties. So, consider a home loan balance transfer only if you have no other options.
Make a larger down payment
Most banks and other financial entities fund 75% to 90% of the property’s entire worth. You are expected to contribute 10% to 25% of the property’s remaining cost. However, rather than paying the least amount possible, it is preferable to contribute extra from your pocket as a down payment. The more you pay upfront, the lower the loan amount will be, which also minimizes the interest that you have to pay.
Search for Better Deals
It is common knowledge that lenders prefer customers who have a solid credit history. Banks frequently provide preferential rates to returning customers or those with a good credit history.
So, if your credit score is near 800, you may be able to acquire higher loan rates.
As a result, if you have been a responsible borrower and have made all your repayments on time, you will most likely be offered lower interest rates on your loan.
If not, you can bargain with the lender if you have an excellent business relationship with them. Apart from that, keep an eye on holiday deals. When the holiday season arrives, banks often cut their interest rates.
Raise your EMI
Some lenders or banks allow you to adjust your monthly payment at least once a year. So, if you’ve changed jobs for a larger wage, you can always choose higher EMIs to shorten your term. When the loan’s tenure is shortened, the overall interest you must pay will be lowered. Check with your lender to see whether such possibilities are available.
Key takeaways
- You need to have an appropriate strategy in place as home loan EMIs can put a lot of strain on your monthly budget. Always remember that your loan amount, interest rate, and loan tenure are important factors in your monthly installment.
- By reducing your home loan amount you will be able to pay less interest as well as you will be able to repay the loan quickly
- A home loan balance transfer, prepayments, and opting for a shorter term, are some of the key factors that would help you in the reduction of your home loan amount.
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