Understanding the Burden of Home Loans
Taking out a loan is a huge decision, and over the years, it has become all the more so, this is especially true in the case of a housing loan. This is due to the fact that the time horizon for housing loans is long and the number of interest payments made against it is high.
Because of this, any loan that comes with a high rate of interest can adversely affect both your other finances and your mental health. For such reasons, it is critical to perform appropriate planning and to try in any way to cut down the rates charged on the loan. This allows you to pay off the loan in an efficient and fast way, which never exposes you to mental pressure.
Ways to Smartly Reduce Your Home Loan Interest Rates
There are a couple of factors which you need to keep in mind before making an application for a mortgage loan. First is the criteria, which is dependent on your earnings and repayment potential. The second important factor is mortgage cost, which includes administrative, processing, prepayment charges etc. The other important one is the total number of years for which the housing loan is sought, which could be pegged at a maximum of 30 years in most cases.
For most individuals, home loan interest rates are their biggest debt, and most people hope to use that loan to get tax rebates with every payment they make. However, regardless of what they hoped for, the tax deduction is not as great as expected since home loan rates are expected to charge at more than the market rate. Now about the STIR and LTIR, both terms stand for Short Interbank Rate and Long Term Interbank Rate respectively, however what we want to focus on are the emulated effects on home loan rates that these terms have, so loans are affected the moment rates shift based on the demand at the time.
1) Opting For a Shorter Loan Term
Every loan, including a home loan, comes with its own set of EMIs that depend on the rate of the loan. With that being said, there are different ways and factors that come into play which are, LtCRs or limits on loan to casa ratios, both have implications if we were to increase or decrease our EIRs We can further add liquidity to our metrics by decreasing the interest rates on LTIR. Finding the ideal tenur simply comes down to making the best decision and bearing in mind that it would leave us in the slightest extent with asset depreciation.
2) Consider Paying More Initially
Instead of relying on the moratoriums offered, it would be ideal to make relevant pre payments so that the debt is off your shoulders. Never forget that surviving without based borrowing should be your focus to as it allows for a quicker repayment LTV to be achieved or even further mpfs as the year progress. However with fixed rate loans the lender does charge a fee for such action which diminishes the benefits we could reap from the prepayment as a whole. However it is always good practice to ask your lender what type of loans you are being charged for prepayment
Investing on a socket in equity funds through a systematic investment plan (sip) is an effective technique of developing funds for the payment of the loan. Overall this would mean that with prudent management saving 10 percent of the EMI throughout the period of the house would give you reasonable amounts to pay off certain proportions of the loan.
3) More Down Payment
It is usual practice for most home lenders to provide 75% to 90% of the value of the property. The amount above that the borrower is required to finance. Therefore, it is best to deposit more rather than the bare minimum in the down payment. The greater the amount you deposit, the smaller the loan amount will be and thus the lower the join costs will be.
4) Credit Score
The CIBIL/credit score is a representation of the clients’ dignity and obligations concerning their past or current borrowings. A score going over 750 is considered to be nearly perfect and it indicates to lenders or institutions that you are reliable and sound financially with a reasonable amount of risk hence they give improved terms of the loan including low rates of interest or even no rates to some customers.
5) Negotiation
You can bargain with the lenders for lower rates if you have a good credit history or established a good rapport with the lenders. Additionally, having a stable job, no existing EMIs, etc., will enable the lender to lend at a very low interest rate, which is cost effective.
6) Home Loan Balance Transfer
As much as the floating interest rate borrowers are able to take advantage when the rate drops, the bulk of the lending bodies provide a refinance loan or a loan balance transfer at new lower interest rates.
Should your new lender offer you a lower rate, you can transfer status of your outstanding loan balance to this new lender. The borrower will not only save on interest payable but also benefit from better terms or features such as the total home loan tenure being reduced or the extension of the period of availing the loan. Which in turn, affects the total value of the month’s home loan payment.
7) Compare Interest Rates
It is always better to conduct proper research and find out rates before choosing a loan. There is a number of third-party websites available which can help to better understand the fees and interest charges of different lenders. Therefore, it pays to check interest rates on loans for all banks before you decide on a particular bank.
8) Increase EMI
Some lenders let you change your installment option once every twelve months. That is why, if you have switched organizations and are earning a higher salary now, you can always select higher EMIs to lower the loan tenure. This way, once the tenure is lowered, the total interest payment amount owing on a loan is expected to reduce substantially as well.
9) Do Not Skip Payments
It is essential to ensure that all EMI payments are made on time. Missing out on an EMI payment will impact your credit profile negatively and you will pay a lot of money for late submission of repayment or there will be penalties accrued from making an EMI payment after the set deadline. For the settlement of your EMIs, it is best to fix one date so that the account can be debited automatically. When the time for the EMI to be paid out approaches, you should ensure that your account contains sufficient amounts of money.
10) Variable Interest Rates
While the government approved interest rate for house loans is set, it varies from one lender to another. A number of borrowers offer both fixed and variable interest rates on mortgage loans. A fixed rate loan will have the same interest all through its life. On the other hand, a floating interest rate is reviewed every three months due to several reasons.
Normally, Fixed rates will have an increment of about 1% to 2% floating rates. The adjustable rates are less expensive than that. Hence, in case rates are anticipated to decrease and there’s hope of lessened interest outlay in the short term, adopting a floating-interest loan is advisable.
Conclusion
Taking a home loan gives you the benefit of acquiring your dream home and makes it a reality. While your EMIs may seem to be in the affordable range, in reality, the total value of your loan may be nearly twice that amount owing to the high interest rate. Therefore, if you are looking to improve your progress at the end of the day, wise finance planning will include finding out ways for lowering the interest paid on the house loan EMI.
There are various options to modify your EMI and enhance the quantum of your loan. Use one or more of the opportunities mentioned above if you wish to pay less interest on your loan.
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