Home loans are a popular way for individuals in India to finance their dream homes. However, the burden of high interest rates can often make these loans seem unaffordable. But, are you puzzled about how to reduce the interest rate on home loans?
If you’re looking for ways to reduce the interest rate on your home loan and save money in the long run, you’ve come to the right place.
In this article, we share five important tips on how to reduce loan interest rates of your home loan and make your EMI more manageable.
Tip 1. Go for a Shorter Tenure
So, how to reduce loan interest on your housing loan? One of the most effective ways to reduce the interest rate on your home loan is by opting for a shorter tenure. While longer tenures may result in lower monthly instalments, they increase the overall interest payable over the loan term. On the other hand, shorter tenures can significantly reduce the interest payable and help you save money.
To understand this better, let’s consider an example:
Suppose you take a home loan of Rs. 50 lakh at an interest rate of 8% per annum for a tenure of 25 years. The EMI would be approximately Rs. 38,586, and you would end up paying a total interest amount of approximately Rs. 63 lakh over the loan term.
Now, if you choose a shorter tenure of 15 years instead, with all other factors remaining constant, your EMI would increase to approximately Rs. 48,400. However, the total interest paid over the loan term would amount to approximately only Rs. 34 lakh.
As you can see from this example, opting for a shorter tenure can result in significant savings on interest payments.
Tip 2. Make Prepayments
For someone looking at how to decrease loan interest rates, making prepayments on the home loan is an effective strategy. Lenders do not charge prepayment or foreclosure fees on floating-rate loans, making it easier for borrowers to make additional payments towards the principal amount.
During the initial years of a home loan, a major portion of the EMI goes towards paying off the interest, while only a small portion is used to repay the principal. By making frequent prepayments, you can substantially reduce the outstanding principal amount and save on interest payments.
It’s important to note that some lenders may charge a certain percentage on fixed-rate loan prepayments. Therefore, check with your bank or lender regarding any prepayment charges you may incur.
Tip 3. Compare Interest Rates Online
If you are wondering how to decrease loan interest rates, conduct thorough research and compare interest rates offered by different banks or financial institutions. Several third-party websites provide information on home loan interest rates and other charges levied by various lenders.
By comparing interest rates online, you can get a clearer picture of the rates offered by different banks and select a product that best suits your needs. Remember, even a slight difference in interest rates can significantly impact your overall savings.
For instance, let’s consider two lenders offering home loans:
Bank A: Offers an interest rate of 8% per annum
Bank B: Offers an interest rate of 7.5% per annum
If you take a home loan of Rs. 50 lakh for 20 years from Bank A, your EMI would be approximately Rs. 40,435, and you would end up paying around Rs. 58 lakh as total interest over the loan term. However, if you take the same loan amount for the same tenure from Bank B at an interest rate of 7.5%, your EMI would be approximately Rs. 39,771, and the total interest paid over the loan term would amount to around Rs. 54 lakh.
By comparing interest rates and opting for a lower rate, you can save a substantial amount on your home loan.
Tip 4. Consider Home Loan Balance Transfer
Are you already making prepayments on your home loan and feel that the interest rate charged by your current lender is higher than what other lenders are offering? Then, it would be best if you transferred your balance to another bank or financial institution at a lower interest rate. This process is known as a home loan balance transfer.
However, it’s important to note that balance transfers should only be considered as a last resort. Any missed payments on balance transfer-based loans can attract higher penalties. Hence, it’s essential to carefully evaluate the benefits and charges associated with balance transfers before deciding.
Tip 5. Increase Your EMI
Increasing your equated monthly instalment (EMI) is another way to reduce your home loan tenure and lower the overall interest payable. If you receive an increment or switch jobs with a higher salary, consider increasing your EMI accordingly.
You can significantly reduce the principal amount over time by paying more towards your monthly instalments. As a result, the total interest payable will also decrease, helping you save money in the long run.
For example, let’s assume you have taken a home loan of Rs. 50 lakh with an interest rate of 7% per annum for 20 years. With an EMI of approximately Rs. 42,348, you would pay around Rs. 42 lakh as total interest over the loan term.
If you increase your EMI by just Rs. 5,000 per month to approximately Rs. 47,348 (keeping all other factors constant), the loan tenure would reduce to approximately 16 years and 8 months. Consequently, the total interest paid over the loan term would amount to around Rs. 35.5 lakh, resulting in substantial savings.
Conclusion
Now, you know how to lower your interest rate on your home loan. It is possible with proper financial planning and the right strategies. By opting for a shorter tenure, making prepayments, comparing interest rates online, considering home loan balance transfers, and increasing your EMI, you can reduce your interest payments and save money over the long term.
If you are looking for housing loans, explore Tata Capital’s competitive home loan percentage rates and find the right home loan product.
20 August 2024
5 mins read
Previous Post
