Strategies to Take Home Loan on Minimum Interest
If you don't have a good plan in place, your home loan EMIs (equivalent monthly installments) will put a lot of strain on your monthly budget. Keep in mind that your monthly installment is primarily determined by the size of your loan, the interest rate, and the length of your loan. You could end up paying more on your loan than you intended due to poor planning.
So, if you're thinking about getting a home loan or have already got one, keep these tips in mind.
1. Apply for a shorter contract.
The length of your loan is one of the most important factors in determining the amount of interest you would pay. While longer terms, such as 25 to 30 years, decrease the monthly installment period, shorter terms, such as 10 to 15 years, help reduce the total interest payable.
Using a home loan EMI calculator, you can see how the interest rate drops dramatically for loans with shorter terms. So, before you sign up for a loan, carefully consider the term so that you don't end up paying a higher interest rate.
2. Making Prepayments Is a Good Idea In addition,
On floating rate loans, lenders do not charge prepayment or loan foreclosure fees. So, if you've taken out a loan, continue to make prepayments now and then. This is because you pay more interest on your loan for the first five years than you do on the principal. Making regular prepayments would significantly reduce the principal amount owed, lowering the overall interest owed. Prepayments on fixed-rate loans, on the other hand, are subject to a percentage fee from the lender. As a result, it's a good idea to check with your bank/ender to see what prepayment fees you'll have to pay.
3. Use the internet to compare interest rates.
Before deciding on a specific product or lender, you must conduct thorough research on loan products and compare rates. There are a number of third-party websites that can help you understand the rates and other fees charged by various lenders. As a result, it's best to compare home loan interest rates across all banks before deciding on a specific bank or home loan product.
4. A balance transfer of a home loan may be a viable option.
Only after you've started making prepayments on your loan does a balance transfer become an option. If you believe your current lender's interest rate is too high, you can move the remaining principal sum to a bank or lender that charges a lower interest rate. Balance transfers, on the other hand, can only be used as a last resort. On balance transfer-based loans, any missed payments result in increased fines. So, just do a home loan balance transfer if you don't have any other options.
5. Make a larger down payment.
The majority of banks and other financial institutions fund 75 percent to 90 percent of the property's overall value. You must contribute ten percent to twenty-five percent of the property's remaining expense. However, rather than paying the least amount possible, it is preferable to spend more from your own pocket as a down payment. The higher you pay initially, the lower is the loan amount, which directly reduces the interest you have to pay as well.
6. Keep an eye out for better deals.
Lenders favour consumers with a strong credit background. Existing customers and others with a clear credit history are often offered preferential rates by banks. So, if your credit score is close to 800, you might be able to get better loan rates. As a result, if you've been a responsible borrower and made all of your payments on time, you're more likely to be given lower loan rates. If you don't have a strong working relationship with the investor, you should bargain with them. Otherwise, keep an eye out for exclusive holiday deals. Over the holiday season, many banks lower their interest rates.
7. Make your EMI bigger.
You will be able to revise your installment once a year for certain lenders. So, if you've switched jobs and now have a higher wage, you can still use higher EMIs to shorten your loan term. And, once the term is shortened, the total interest you must pay for your loan would be significantly decreased. Check with your lender to see if such options are available.