After RBI’s repo rate cut, from 4.4% to 4%, most housing finance institutions and non-banking finance corporations are offering a much more reasonable home loan interest rate. This has made home loans quite popular, of late.
Nevertheless, borrowers can easily reduce interest burden on a home loan by following a few healthy practices. These tips can help lower the rates regardless of macroeconomic factors, including the repo rate.
How to reduce your home loan interest rate?
There are several ways to reduce your home loan interest rates. Here are the following:
- Short tenor
Although a shorter home loan tenor can increase your home loan EMI, it makes sure that the principal amount is repaid earlier.
The rate of interest is calculated on the principal amount. Thus, after the lender recovers the principal amount, the total interest payout decreases. This process is the best way to reduce home loan tenor and total EMIs.
2. Increase EMI yearly
With annual salary appraisals, consider increasing your EMIs by a certain percentage, even if it is as little as 5%. This helps repay the principal amount early and thereby reduce the interest.
3. Set EMI goals
Set a target to pay at least one extra EMI annually. This may not seem like much, but it helps exponentially in repaying the loan much faster, thereby obviously paying lesser interest.
To be one of the select few with home loan eligibility, it is always good to pay a little extra back on the months where there is surplus income in the form of incentives and such. That way, the loan is repaid faster, and the borrower gets a good credit score.
4. Consider refinancing the home loan
If you have a good CIBIL score for home loan and come across a financial institution that is offering a much lower interest rate, you can consider switching to the other HFC.
However, it is advisable to fully evaluate the other costs involved in the switching lenders, such as pre-payment penalty and legal fees. If, after all evaluations, the new refinanced loan structure is a cheaper option overall, it is better to consider refinancing the home loan and actually doing the switch.
5. Shift to MCLR based lending rate
In case there is an on-going loan repayment process from before 2016, one may consider asking their lender to shift to a marginal cost of fund-based lending rate because they stand to gain from the change in the home loan interest rate.
However, most HFCs levy certain taxes and a conversion fee for this option, so a cost analysis would be a good thing to do before asking for the conversion.
To make your home loan process easier still, some housing finance companies of great repute provide pre-approved offers to expedite the loan procedure. These offers are available across financial products such as home loans, loan against property and more. Individuals can easily check their pre-approved offer by providing their basic information such as name and contact details.
If one adheres to the above mentioned financial advice, at least one of the aforementioned tips can come in handy to secure a home loan interest rate that is suitable for the borrower. In the long run, rate reductions would lead to decreased home loan liabilities.
