Repaying a housing loan on time is a crucial financial commitment. That is because it generally takes a borrower around 15 to 20 years to settle the e
Repaying a housing loan on time is a crucial financial commitment. That is because it generally takes a borrower around 15 to 20 years to settle the entire debt. In case of improper planning, a high EMI can negatively influence the borrower’s mental health and financial well-being.
However, there are a few ways to manage repayment efficiently by ways of minimising home loan interest rate. Here are some tips.
- Choose a suitable loan tenor
A borrower, based on his/her requirement and budget, can select either a long loan tenor or a short loan tenor. Opting for a short tenure lowers the risk of default from a lender’s perspective, which is why he/she is likely to offer lower interest rates against such financial products.
Contrarily, if one opts for a long tenor, lenders are more prone to associate greater default risk with the long-term commitment of such a loan and charge higher interest rates.
Opt for a home loan tenor that doesn’t involve a huge interest burden or strain the budget to make the repayment procedure a smooth breeze. Use an easy home loan EMI calculator to estimate the loan cost beforehand.
- Apply for a home loan balance transfer
Reducing housing loan interest rate is convenient with a balance transfer service that shifts the outstanding loan amount to a different financier who has been ensuring better interest rates and other eligibility terms. A borrower can avail this facility when other financiers charge a lower interest rate than his/her lender.
Securing a sizable home loan at an attractive interest rate is now a smooth procedure. Some reputed NBFCs facilitate reasonable borrowing costs and affordable EMIs.
Further, there are time-saver pre-approved offers for the existing borrowers that simplify the loan processing. Such instruments are available for home loan and LAP. They just need to provide their names and phone numbers to check the pre-approved offers online within seconds.
- Shift from fixed rates to floating rates
If one has to get a home loan in India at a fixed rate, it’s possible to lower the interest rate by shifting from the fixed rate to the floating rate. Financiers usually impose a 1% to 2% higher rate for fixed rate home loans.
For example, if the loan floating rate was 9% 6 years ago, the loan fixed rate would be nearly 10.5%. The borrower who was repaying the fixed interest rate loan in 2021 was in a disadvantageous position. That’s because by that time, the floating rate was nearly 7%, but the fixed rate was still 10.5% for the borrower.
Hence, considering a switch can be a fruitful deal in this case. Check how to select between fixed and floating interest rates to get a better idea.
- Make part prepayments
The NBFCs offer borrowers the flexibility to make part prepayments without charging any penalty. A part prepayment significantly impacts one’s repayment tenor since this sum helps to bring down the residual principal amount and the total interest payable.
With this, the loan tenor gets reduced, and repayment becomes faster. Suppose one has an extra source of income or receives a bonus. In that case, prepayments can be a great option to lower the overall interest outgo, although the interest rate remains unaffected.
In addition, Sections 24 and 80EE of the Income Tax Act of 1961 offer home loan interest tax benefits to the borrowers to make house purchases more favourable. Even joint home loans come under the purview of these sections.
With that, you can repay the housing loan effectively and with a lower interest rate. Note that reputed financial institutions maintain transparency on rates and keep no hidden charges.