With RBI slashing the repo rate consecutively, the lending rates of home loans reduced considerably, making interest rates more affordable.
However, even with competitive interest rates, the risk of defaulting on EMI payments remains prevalent. To avoid the same, there are certain methods that you can avail through which you can get lower home loan rates payments. So if you have availed a home loan, look through the following methods to reduce the total amount on your interest paid.
How to decrease your interest payment on home loans?
Here are a few methods through which you can reduce your interest payment on home loans in India.
These are –
- Choose to pre-pay your home loan
Loan prepayment is an option where you can partly pre-pay your outstanding advance amount before the due date.
Usually, during the initial days of your loan repayment, your interest component remains much higher than the principal amount you pay. With a reduction in loan tenor, your principal amount payable becomes higher while the interest reduces.
Thus, when you choose to prepay your loan amount through higher EMIs, you automatically repay the advance before the tenor, consequently saving on your home loan interest payment.
Additionally, you can continue to avail home loan interest tax benefits if you choose to prepay your home loan amount.
- Consider a home loan balance transfer
Few financial institutions offer the facility of home loan balance transfer that can help you to lower the quantum of your interest payment. By using this facility, you can shift your outstanding loan amount from your existing lender to a lender offering lower interest rates. Thus, home loan balance transfer helps you to save money on interest payments.
- Compare the rates offered by different lenders
You need to put in appropriate research to make sure that you avail the best rates for the advance. Since interest rates for housing loans vary from one lender to another, you should match them to get the best home loan interest rate.
Also, make sure you use a loan EMI calculator to calculate your repayment amount before you apply for these credits. You can also use this calculator to find out the EMI amounts payable according to the variable interest rates of different lenders. This can automatically help you to choose the lender providing better interest rates and consequently pay lower interest amounts.
With these three methods, you can reduce your home loan interest payments. However, before you avail of the above methods, there are a few things you should be careful of.
Things to consider before taking advantage of the above methods
Even with the advantage of lower housing loan interest payment, you need to mindful of the following factors to make sure that you save more than you pay-
- Check the charges associated with prepayment
Before you avail the prepayment facility for a home loan, check the charges levied by the financial institution for it. These charges may vary from one lender to the other and also according to whether you pay a fixed or floating interest rate for it.
However, with institutions like Bajaj Finserv, you may not need to pay any additional part-prepayment charge if the amount you pay is less than 25% of the total outstanding principal amount.
- Additional fee for a balance transfer
Similar to the prepayment facility, balance transfer also comes with additional fees for which you may end up paying more than you save on the housing loan interest amount.
That is why you should check the factors above to ensure that the penalties you pay for the above facilities do not exceed the amount you save from interest. Hence, consider all the factors before you avail of the features above.