Easy financing options help us plan to buy a dream home quicker than ever. Anyone planning to take a Home Loan may be worried about interest rates as a Home Loan is one of the long-term obligations. The maximum Home Loan tenure can go up to 30 years, depending on the applicant’s retirement age. So even a minor difference in interest rate can impact the total interest payout.
6 Tips to Reduce the Interest Payable on a Home Loan
Use these tips to reduce the interest burden –
Keep Loan Tenure Short
Stretching the Home Loan tenure can lower the monthly payments, but it will make the borrower pay more in the long run. Annual percentage rates of a loan are based on market forces and the degree of risk accepted by the lender. With a long-term loan, the lender takes a high default risk and may charge a higher loan rate. Consider selecting a shorter loan tenure. If financial standing and current cash flow allow you to take a shorter-term loan, use it to your advantage. Use an online Home Loan interest calculator to get an idea of interest payable during the decided tenure.
Prepay or Part Pay Loan Whenever Possible
It is wise to borrow as little as possible and repay the debt as quickly as possible. Lending institutions allow borrowers to prepay or foreclose the Home Loan before loan tenure ends. It helps borrowers to save a lot on interest payable. Generally, renowned NBFCs (Non-banking Financial Companies) do not levy prepayment or loan foreclosure charges on floating-rate Home Loans. So you should consider making prepayments during the first few years of loan tenure if the financial conditions allow you to do the same.
Maintain a High Credit Score
A credit score is the biggest factor considered by financial institutions to decide if a Home Loan application can be approved or not and at what interest rate. Most lending institutions prefer approving loan applications with a good credit score. A score of 700+ indicates that the applicant has a spotless credit history and has paid previous debts in a disciplined manner. The lender finds a low default risk with such applicants, and the loan amount can be recovered on time. It makes them offer a low-interest rate. Negotiating loan terms and rate of interest is possible for the borrower with a good credit history.
Pay a High Down Payment
To make a purchase using a loan, individuals need to make an upfront payment called a down payment. If an individual pays a high down payment, the lender can offer lower interest rates on Home Loans. A high down payment decreases the principal amount on which the interest is calculated. Ultimately the interest rate and the Equivalent Monthly Instalments (EMIs) will be reduced with a high down payment.
Home Loan Balance Transfer
If a borrower finds a lending institution with better terms on Home Loans, like reducing home loan interest rates, they can transfer the existing Home Loan to the new lender. This balance transfer facility transfers the Home Loan from the old lender, and the new lender treats the loan as a new Home Loan application. This facility is primarily utilised to save on the loan cost. When the policy rates of the Reserve Bank of India (RBI) change in the economy, financial institutions also need to change their lending rates. The interest rates are modified at different scales by different lenders. In such situations, the Home Loan balance transfer is an attractive option, mainly when unsatisfied with the existing lender’s services. Like simple Home Loan interest calculators, lenders offer a Home Loan balance transfer calculator also to calculate savings on interest payable.
Claim Interest Deductions
Home Loans are eligible for tax deductions on the interest payable. Borrowers can save a considerable amount through tax rebates while filing their income tax returns. The interest paid can be claimed from the total income up to INR 2 Lakh under section 24(b), Income Tax Act, 1961. You can claim the deduction on the paid interest if the property is built and you acquired the property. Check your tax deductions when you are filing your income tax for the financial year to reduce the burden of Home Loan rates.
Considering the crucial factors mentioned above to reduce the overall interest cost on a Home Loan. Borrowers should ensure that they go through the terms and conditions of the lender for a Home Loan before signing up. It will help to know all the possible options to reduce the Home Loan interest payable.