Home Loan: If you want to reduce the interest payment on your home loan, you should consider pre-paying the loan amount.
Home Loan: A home loan is a long-term responsibility. While a home loan can certainly help you get your dream home, its repayment comes at a cost in terms of the interest amount. As a home buyer, maintaining your monthly home loan payments can be financially exhausting, as you have to pay your EMIs regularly. Additionally, the interest component of the loan can further increase your financial burden. But if you have a solid plan, loan repayment will not be much of a problem. If you want, you can reduce the EMI of the home loan. That is, you can reduce the amount paid as interest. For this, taking some of the following initiatives can help.
Pre-payment of loan
If you want to reduce the interest payment on your home loan, you should consider prepaying the loan amount. Prepayment reduces the principal and reduces the interest. Before doing so, make sure that your bank or home loan provider does not charge any penalty or fee for prepayment, especially if the interest rate is fixed. In case of floating rate, no pre-closure charges are levied.
Don’t choose a long-term loan
The interest rate charged by banks for long-term home loans is higher. In such a situation, if your financial situation allows it, it is wise to choose a short-term home loan. This will speed up the repayment process with lower interest rates.
If possible, increase the installment
If your financial situation is stable, you can consider increasing your monthly installment (EMI) by 5 percent every year or paying more than one EMI in a year. According to the ICICI director, this will significantly reduce the amount of interest you pay. One thing you should consider before this is to estimate your financial needs, then calculate the home loan EMI, as well as how much additional EMI you can afford in case of salary growth or annual bonus. Even though the amount is small, it can have a significant impact on your loan tenure.
Keep an eye on low interest rates
Always keep an eye on the home loan interest rates in the market. You can try to find out if the banks are offering lower interest. This can help you choose the option of refinance or home loan balance transfer. This reduces the interest burden. This process involves transferring the outstanding principal amount from the old bank to the new bank at a lower rate. This is an easy and effective way to save on interest and use your savings to manage other financial responsibilities.
Try to pay more down payment amount
When you buy a home, it is usually required that you make a down payment of at least 20 percent of the total purchase price. If you are taking a home loan, try to make as much down payment as possible. This can reduce the loan amount, which can help you get a lower interest rate. This will ultimately facilitate faster repayment of your home loan.
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