Before applying for a mortgage loan, there are a few things you should keep in mind.
The first is the qualifying requirements, which are determined by your income and
ability to repay. The mortgage cost, which comprises administrative costs, processing
fees, prepayment fees, etc., is the other important consideration. Another crucial factor
is the duration of your house loan, which can be approved for up to 30 years.
A home loan has many tax benefits. However, because home loan interest rates are
higher, you can end up paying more EMIs. Changes in interest rates have an
immediate impact on loans. Hence, the following factors must be considered to lower
your interest rates.
Short Tenures
The loan term is the main factor determining the interest. Longer tenures
reduce the EMIs, while shorter tenures can assist in lowering the total interest
amount that must be paid. A home loan interest rate calculator will show how
interest rates can be reduced with shorter loan tenure. Hence, choose a tenure
that can help in reducing the interest rates.
Prepayment
Prepaying the loan is one of the best strategies to reduce loan interest costs
and save money. If the rate of interest is floating, the borrower need not pay
any pre-closure fees on loan prepayments. Regularly making extra payments
will considerably lessen the principal balance and, thus, the overall interest.
However, lenders impose a fee for the prepayment of fixed-rate loans. Hence,
check with the lender what type of interest you are being charged.
More Down Payment
Most home lenders generally finance between 75% and 90% of the total
property value. The balance amount the borrower must contribute. Hence, it is
best to pay more down payment rather than paying the least amount. The loan
amount will be smaller if you pay more upfront, which reduces the interest you
must pay.
Home Loan Balance Tranfer
Transferring the outstanding amount to a lender offering reduced interest rates
is an option you can consider if the rate your present lender charges is higher.
Apart from saving money through lower interest rates, a borrower also gains
from improved features like tenure extension or reduction, which ultimately
influences the monthly home loan instalment.
Increase EMI
Some lenders provide you with the option to change your installment once a
year. Therefore, if you have changed jobs and received higher pay, you can
always choose higher EMIs to shorten the tenure. Additionally, once the tenure
is shortened, the total interest you must pay on your loan will decrease
significantly.
Do Not Skip Payments
You must ensure that you make timely EMI payments. Missing an EMI will
negatively impact your credit profile, and you will incur significant interest costs
and penalties for a late EMI payment. To pay your EMIs, the ideal option is to
designate a specific date for a direct debit of your account. When the EMI is
due, you must make sure sufficient funds are there in the bank.
Floating Interest Rates
Despite being set by the government, the interest rate on house loans differs
amongst lenders. The majority of lenders provide both fixed and floating interest
rates. A fixed rate does not change during the loan term, while a floating
interest rate is adjusted every quarter in response to multiple economic factors.
Fixed rates often cost 1% to 2% more than floating rates. Loans with
adjustable rates are more affordable. Therefore, choose a floating-interest loan
if you anticipate a decline in rates and wish to reduce your interest expense in
the near future.
Closing Thoughts
When it comes to getting your dream home, a home loan is a blessing. Even
if your EMIs appear reasonable, the high interest might nearly double the value
of your loan. To increase your savings at the end of the day, a wise financial
strategy would include reducing the interest paid on the house loan EMI.
There are many strategies to lower your EMI and lower the amount of interest
you pay on your home loan. Opt for one or more of the aforementioned
alternatives to lower the interest paid on your loan.
Source: Confident Goup