A Home Loan is a major financial commitment you make to achieve your dreams. Your Home Loan interest rate can greatly impact your finances in the long run. Most borrowers follow a get-the-loan and forget-the-loan approach while dealing with their Home Loans in India. If you choose your interest rate wisely, you can reduce your cost of borrowing.
Let’s take a look at how you can maximise your savings with the best housing loan interest rates in India.
Aim for the Lowest Possible Interest Rate on Your Home Loan
The Home Loan interest rate is the rate at which your bank offers credit to you. This loan is offered for a predetermined period. The interest on your Home Loan is compounded monthly. As such, your total interest outflow on your loan can be a substantial amount.
Suppose you avail of a housing loan of Rs. 30 lakhs for a tenure of 20 years. Let the interest rate be 8.50% per annum. The total interest outflow on your loan will be Rs. 32.48 lakhs.
Now consider availing the same loan at an interest rate of 7.50% per annum. In this scenario, your total interest outflow will be Rs. 28 lakhs. This means you can save more than Rs. 4 lakhs with a difference of 1% in your interest rate.
So, before applying for a Home Loan, compare the interest rates various banks offer. Aim for the most competitive rate for your Home Loan. Remember that even a small difference in the interest rate can have a large impact on your total interest outflow.
Refinance Your Existing Home Loan for a Lower Interest Rate
If you have an existing loan, you can opt for a lower Home Loan interest rate through refinancing. It involves transferring the balance amount of your loan to a new bank for a better borrowing rate. This way, you will be able to reduce the interest outflow for the remaining amount of your loan. In other words, you can increase your savings by refinancing your Home Loan.
But remember that transferring your Home Loan to a new bank can involve additional costs. For instance, you may have to pay charges like legal fees, processing fees, etc. So, consider these charges while calculating your net savings. Also, negotiate with your new bank to avail the best possible interest rate.
Go for a Lower Tenure for Your Home Loan Repayment
Your Home Loan repayment tenure plays a significant role in maximising your savings. If you opt for a longer tenure, it can mean a lower EMI for you. But your interest outflow will be more, as you will have to pay the EMIs longer.
Now suppose you go for a shorter tenure for your Home Loan with the same interest rate. It may cause your EMI to increase slightly. But you will end up paying less overall interest.
Hence, opting for a lower tenure and interest rate can drastically reduce your total payable interest. And increase your savings.
Pay One Extra EMI Every Year
When you take a Home Loan, you commit to paying 12 EMIs every year. Just paying one extra EMI can make a massive difference to your total interest outflow.
The EMI you pay for your Home Loan is divided into two parts. One part goes towards paying the interest on your debt. The other part goes towards repaying your principal amount. In the initial years of your Home Loan, the interest component of your EMI remains greater than the principal component. As such, the maximum amount from your EMI goes towards paying the interest.
Paying one extra EMI every year will go towards repaying the principal amount. If you do this for about 10-11 years, you can significantly reduce your outstanding principal amount.
This practice will help you prepay your Home Loan without shouldering any extra financial burden. Just 13 EMIs instead of 12 EMIs per year can fasten your Home Loan repayment. At the same time, you can save on the total interest payable.
Conclusion
A Home Loan provides an easy way to overcome your financial hurdles and purchase your dream home. By following the tips above, you can use your Home Loan interest rate to your advantage and increase your savings. So, keep your Home Loan documents list ready and look for banks that offer the most competitive interest rates.
