How existing borrowers can reduce their home loan interest rates
Home loans are long term loans which continue for as long as 30 years if you don’t want your EMIs to burden you financially. While the loan allows a high tenure, you cannot ignore the associated interest payments during such term. Moreover, your home loan interest rate can also change during the term of your loan which would increase your EMIs if the underlying interest is increased. However, there are ways in which existing home loan borrowers can reduce their home loan interest rates. Do you know how? Here’s how
Refinancing of the loan
The best option to reduce the interest rate is to opt for a balance transfer of home loan. If you find another lender whose interest rate is lower than your existing lender’s interest rate, you can refinance your home loan through a balance transfer. A one-time processing fee would be applied when you choose to transfer your home loan but your overall interest rate would reduce and save your money in the long run. However, before you choose to transfer your home loan, check the difference in the interest rate and the remaining repayment tenure of your loan. The balance transfer is advised in the starting years of home loan repayments. If the loan is about to be paid off, balance transfer doesn’t make sense. You would be incurring a high processing fee for transfer whereas the savings in interest rates would not be high enough to compensate the balance transfer fee payable. So, make a cost-benefit analysis before switching your home loan to another lender.
Increase your EMI
If it is affordable for you, you can increase the EMIs of your home loans. As the EMIs are increased, the outstanding balance of the loan reduces quickly which also reduces the interest charged by the lender. In fact, it is advised that you should try and increase the EMIs of your home loan by 5% to 10% every year. This slow and steady increase would help you repay your loan faster and would also reduce your interest payments.
Choose MCLR based interest rates
MCLR is the Marginal Cost of Lending Rate. This rate is dynamic and changes with the change in the repo rate. MCLR is very responsive to repo rate changes and you can, therefore, enjoy interest cuts as soon as the RBI reduces the repo rates during the term of your loan. So, if you believe that repo rates are all set to reduce in the near future, switch your fixed home loan interest rate to MCLR-based rate.
Prepay your loan
Home loans allow partial prepayment of the loan during the loan tenure. This prepayment reduces the loan burden and, therefore, reduces the interest amount payable. So, if you have surplus funds at your disposal, try and make a partial prepayment towards your home loan to reduce the interest burden.
You can choose one or more of these ways to reduce your home loan interest rates. But before choosing these ways, understand them carefully so that your interest rates are reduced and not increased after your endeavors.