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Since home loans are long-term loans, even a small deduction in the interest rate greatly reduces the overall EMI to be paid. So, if your home loan is under fixed rate of interest, contact your bank and place a request to change it to floating rate of interest. If you think you have taken a loan at a high interest rate, you always have an option to refinance it. Banks normally offers interest rate based on the MCLR regime which differs from lender to lender. In such a scenario, you can switch to another lender offering better rates. Existinghome loan borrowers having sizeable residual tenure can also transfer their existing home loan to another lender at lower interest and then opt for the home loan saver/overdraft option.
The problem rose after the Reserve Bank of India removed limits to the charges that could be made on different counts and the banks started to make these charges arbitrarily. A loan may be taken in order to fulfill any life goal or finance an immediate need. However, one must remember that a loan is also an added expense, considering the interest which banks levy on the EMI payable.
Rate cut by RBI is not certain as a result of inflation concerns
Choose the smart way and make a Systematic Investment Plan in Mutual Funds equal to 10% of the monthly installment amount, you can get the full home loan cost back. However, if you opt for shorter tenures, your EMI may be slightly more, but your overall interest payable will come down drastically. Hence, you must choose a tenure carefully before you avail of a home loan. You can work towards making a larger down payment and then reaping the benefits of a lesser loan amount with a significantly lower interest. Here, we’ve mentioned all the points that you can implement to save your hard-earned money.
If you get a competitive rate, a balance transfer may help you bring down your EMI. Although a home loan is offered by many banks and housing finance companies, there is a big difference in the interest rate they charge. So there’s a good chance you’ll be paying a higher EMI simply because your loan isn’t from a competitive lender. If you haven’t compared your interest rate, now is a good time to do so and check if your lender is charging a higher rate, even under EBR. Since most home loans are variable rate and there is no penalty for transferring your loan, the only cost involved will therefore be the fees charged by the new lender.
How to Reduce Your Existing Home Loan EMI
This will not only help you reduce the EMI of your loan, but will also help you save big in the long run. If your lending bank is offering low rate of interest for home loans as per it’s revised circular, it is applicable only to new loan applicants. For existing home loan borrowers, the rate of interest at which the loan was sanctioned is the percentage that will be applicable. Floating rate of interest for loans are generally 1-2.5% lower than the fixed rate of interest.
Use a Home Loan EMI Calculator to understand how a different interest rate, loan amount, or tenor can affect your EMI. If your loan EMIs exceed 40-50% of your net salary, then your EMI is too much for you. Even the banks and financial institutions ensure that your loan EMIs do not exceed per cent of your net salary. Now if you invest a month SIP of Rs 2000 which is 10% of the EMI, then for the same period of 25 years, you are getting Rs 65.7 lakh, estimated at 15% p.a.
Opt for a Higher Down Payment
Due to the pandemic situation, they couldn't pay their EMIs, so RBI gave them the option of a moratorium, where they may skip the EMIs for a temporary period. However, in such cases, you will have to repay all the pending EMIs at a suitable repayment regime. Still, it can prove to be a great help in situations where you are already facing trouble in making two ends meet. Although, it is not valid at present times, but you should keep an eye, if any such situations arise again. One of the best ways to reduce your home loan EMI is by partial prepayment.
Because the customer bears a portion of the cost of the item, the amount that the customer must borrow as a personal loan will be reduced as well. The principal amount borrowed by the customer is used to compute the personal loan's interest. As a result, the greater theinstant personal loanamount, the more interest you will have to pay and the higher your EMI would be. Hence, putting down a significant sum as a down payment is a prudent move. There are some loans which attract significantly high rates of interest, like credit card loans. Therefore, if you have taken a credit card loan, a personal loan and a home loan, it is advisable to pay off the credit card loan as soon as possible.
A systematic and planned approach to availing and repaying a home loan is the ideal way to lead a stress-free life. A well-managed loan makes a life goal easily achievable and is a preferred option, even if you have the funds to buy a house without the loan. However, you could end up paying more EMIs due to higher home loan interest rates. Transferring the home loan is advantageous for those who are presently paying a higher EMI.
Increasing the EMI amount yearly will reduce the tenure, interest rate, and EMIs too. There are several ways and techniques to help you reduce your EMIs and the interest rate of your home loan. These techniques are for borrowers who are going to take a loan for the first time or have already taken one.
Though all interest rate regimes should ideally charge the same rate, in reality it does not happen. The chances are you may be paying a much higher interest rate under old regimes like BPLR, base rate or MCLR compared to a loan linked to the EBR. If you shift your loan to an EBR-linked loan, then there is good chance that your interest rate would come down and hence, your EMI as well. A home loan is probably the biggest liability one takes on in their lifetime.
After April 1, 2016, all variable rate loans from banks were linked to the lending rate based on the marginal cost of funds , which was then replaced by the external reference rate from 1 October 2019. Depending on the timing of your loan disbursement, your loan will continue under the same old scheme if you have not switched to a new scheme. When it comes to home loans, there are a bunch of banks and finance companies offering them. However, before choosing the lender, do your research, and go for the lender who offers the lowest interest rates. Even though you have already taken the loan, make a comparison of the interest rate charged by your lender with other lenders. If you find a suitable option with a low rate of interest, it is high time you should shift your loan to a new lender who is offering lower interest rates.
Only if your total loan amount (inclusive of all the charges, taxes, fees, etc.) is less than your existing lender, opt for ahome loan balance transfer. In the example above, by switching to a variable rate loan, the borrower will save Rs 4,869 per month on EMI and Rs 5.85 lakh on interest payment for the remaining term. If you have decided to take a loan and your existing bank is not offering the best deal, feel free to look around.
There are certain ways or tips which can help you save money on your loan EMI. From negotiating with your lending company to changing your lender, listed below are some of the ways in which you can bring down the cost of your loan. By following these steps, borrowers can make a smarter decision before applying for any type of loan. A well-informed and smarter financial decision can help the borrower to end their EMIs sooner with a lower interest rate.
It is a method used to avoid defaulting on current debts by negotiating interest rates. If you find yourself in financial distress, loan restructuring is a less expensive alternative to insolvency and can help you lower your EMIs. To top it all, the Reserve Bank of India recently decided to keep the key interest rates unchanged. This has come as a big respite for borrowers amid the ongoing COVID-19 pandemic.
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