The amount borrowed as home loan is substantial and so is the interest to be paid on it. Under such a circumstance, the disposable income is required to be curtailed each month, which becomes an issue for the home buyer. The only way left for the smooth running of your monthly expenses is by decreasing the amount to be paid as interest every month irrespective of having taken a home loan from HFCs (Housing Finance Companies) or banks.
As told by an expert, the norm is that the new borrowers are offered with a reduced interest rate on home loan in comparison to that of the borrowers who already have loans existing. In order to lessen the high rate of home loan interest that you are paying at present, shift the balance loan to the HFC or bank that you find offering an interest rate that is relatively lower than the existing one. But this transfer of loan involves a certain expense in the form of a nominal conversion fee that is to be paid to your present lender. So, estimate the cost accordingly before acting.
We have provided four solutions for you to choose from so that you can shrink the sizeable amount of interest that you are now having to spend each month on the home loan.
MCLR regime is a favourable option to turn to as it allows better availability of the advantages of the RBI’s policy rate. Keeping a record of the loan reset dates that have been previously fixed, MCLR assures that any change in the lending rate within the term of the loan is available to the home loan borrower at the arrival of the reset date based on the rate, which existed on that date.
Housing Finance Companies (HFCs) at present do not fall under the concern of MCLR authority. Thus, if you have taken a home loan from any HFC then you need to transfer it to a bank, which involves the payment of a conversion fee that can extend up to 1% of the outstanding principal amount. But if the rate of interest differential exceeds 1% then switching the balance loan to a bank offering lower interest rate would be a wise move.
By opting for a home loan overdraft, you will be able to deposit money that you have in addition to the regular EMI, which will be considered as pre-payment till you withdraw that sum. The interest payable on the home loan as well as its tenure will diminish if you deposit additional money in the home loan account. This facility also makes provision for you to withdraw that excess amount from the home loan account, whenever you require it but do not withdraw it unnecessarily as it will result in an increase of your loan’s outstanding balance, consequently expanding the rate of interest to the previous level that has been weighing on you.
An easy and effective way to save on home loan interests and even repay the loan faster through time to time pre-payments before the loan tenure ends. This will reduce your interest payments on a whole. So, whenever you get an annual bonus, make the most out of it.
Here is an example to show how your load of home loan interest payment gets reduced.
If 5 years ago you had taken a loan of 30 lakh rupees at a rate of 10% p.a. for a term of 20 years and partially pre-paid 2 lakh rupees, you would save 5,96,254 rupees on overall interest payment and the term of loan will also decrease by 27 months from 240 to 213 months towards the end of the 5th year.
You have the choice of prepaying the outstanding home loan balance either wholly or in parts. Pre-payment charges do not apply to home loan availed at floating interest rate but they are levied on loans taken at fixed interest rates. Thus, you need to ensure that those charges are not affecting the saving on the interest amount altogether.
If you aren’t tech-savvy then try to become one and you will be at advantage by being able to check online portals that display various home loan interest rates from various lenders, fees and other expenses.
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