Buying their own house is a dream for many; and we encounter many people struggling throughout their lives to accomplish this dream. While owning a property comes with its own set of challenges; but a common belief is that the biggest challenge is to arrange for the initial down payment with which you can kickstart the deal. Well, actually that’s not the real challenge.
The real challenge is to pay back the Home Loan EMIs with such high interest rate for 20-30 long years of your life before that house can be actually declared as yours. Home Loan providers typically charge an interest rate of around 9-12% per annum; moreover since the principal amount is also much higher than any other loan like a Personal Loan or car loan, the repayment of the loan becomes a herculean task for the borrower.
Besides, if the equated monthly instalment (EMI) amount goes beyond 50% of the borrower’s monthly salary, then survival becomes difficult, as that doesn’t leave him with any money to pay off his other dues and manage his household. That is precisely why financial experts always suggest that one should not have more than 50% of his income going on EMIs or debt recovery; else he would not be left with any money to manage his living.
Below mentioned are some tips to reduce the rate of interest on your Home Loan so that it could take some burden off your shoulders:
- The first thing you should do is opt for shorter loan tenure. Go for a 10 or maximum 15 years tenure rather than the 20-30 years term. Most people choose longer term as the EMI reduces with increase in tenure; however what they don’t realize is that they end up paying much higher in the overall scheme of things. In a typical 20 year term, you end up paying close to double of the amount financed by the bank. If you have a short tenure, the principal amount would be paid back much faster and hence the interest levied will also be much less.
- If you have already availed the Home Loan, but you feel that you are paying a higher rate of interest, you could go for a refinancing option. Always keep a close eye on the industry as to what are the interest rates of other players; if there is some other bank that offers you the same loan at a lower rate of interest, switch your bank and then take benefit of that. Obviously before finalizing on the switch over, you may want to be sure of their terms and conditions, loan transfer fees, and other charges.
Refinancing your Home Loan means that you will transfer the remaining outstanding to another Bank by taking a separate Home Loan from them. That bank would pay off your existing Home Loan provider their outstanding balance and thereafter you would be liable to pay to the new Home Loan Provider. This is a very common practice that people go for, if they find other banks offering Home Loans at the lesser interest rate. The instant thing that will change is your EMI amount will go down.
- If shorter loan tenure was not a possibility, considering the high EMI amount, you can also plan for quicker EMI repayment. The faster you pay back the Principal amount, the lesser interest you would need to pay.
You can choose to pay slightly higher than your monthly EMI. Ensure that you deposit some extra funds apart from your EMI in your Home Loan account. Whatever extra money you pay, cuts down that principal amount that much.
- If you plan methodically, you can actually plan to pay one extra EMI every year. For example, if you are paying Rs. 50,000 every month for the entire year i.e. Rs. 6 Lakhs; plan for just one more Rs. 50,000 extra. This will only reduce your outstanding amount by that much amount.
- A more methodical approach would be to map the EMI growth with the growth in your salary. Every year, we have a monetary increment in our salary. You can go for the same proportion of upgrade on your Home Loan EMI as well. Even if you look at 5% increase in your EMI, it means that you have had a significant reduction in your Principal amount which would further impact on the interest paid as well.
If you combine the 5% increase in EMI and one extra EMI per year, you would surely be paying at least 20-30% extra in your overall yearly EMI.
Conclusion: The above mentioned were some tips through which you can reduce your Interest on your Home Loans. Chalk out a plan and follow them rigorously and you can to get rid of your Home Loan EMI soon enough.