Ways to reduce your interest payment on existing housing loan
Repaying a housing loan takes a toll of about 20 to 40% of your total monthly income. When such a significant amount goes into repayments each month, you might lack the funds to support many of your financial liabilities. Plus, saving money for your future needs becomes virtually impossible. Let go of the misconception that repayments are always burdensome, as there are simple yet effective ways to limit your monthly repayment outgo.
Here’re a few you should know.
Go for lengthy tenures:
The Equated Monthly Installment (EMI) you’ll be repaying for the home loan depends on the housing loan interest rate and loan tenure. There’s an inverse relationship between the tenure and EMI. Lengthier the tenure, smaller the EMI is and vice-versa. So, choosing a longer tenure will minimize your EMIs and relieve the financial burden. The financial institutions offer expansive home loan tenures, up to 30 years, to support any repayment need and schedule.
However, you’ll be paying more on interest rates in lengthy tenures. Suppose your loan amount is INR 60 lacks and interest rate is 8.35% PA, here’s the EMI breakup.
|10 years||INR 73910||INR 2869312||INR 8869312|
|20 years||INR 51502||INR 6360282||INR 12360282|
|30 years||INR 45498||INR 10379458||INR 16379458|
Feel free to use the home loan EMI calculator to compute your EMIs based on the tenure and interest rates. The EMI calculator is a free, easy to use and easily available web tool.
Opt for a home loan to MCLR facility:
Preferring MCLR regime is also a smart move to limit the loan payouts. MCLR stands for Marginal Cost Of Funds-Based Lending Rate. In this arrangement, you get the policy rate benefits set forth by the RBI, along with more transparency vis-à-vis the previous regime. Here, the loan reset dates are pre-fixed, which allows you to receive the benefits of any changes in the lending rates as the reset date approaches, and subject to the applicable rate on that date. Capitalize on the home loan calculator to know the difference the changed lending rates make to your EMI.
Make extra repayments:
Partial payment facility is the norm in the banking sector, allowing you to make at least a couple of partial repayments annually. The partial payments help you to quickly repay the principal amount, which means lower EMIs and lower interest rates. When determining your home loan eligibility, also check with your lender for the number of partial payments allowed and the minimum amount accepted. Different financial institutions have different policies in this regard.
Transfer the home loan balance:
You might be paying higher interest rates on your home loan than what other lenders offer. In this case, opt for the refinancing facility to get the better end of the deal. This way, your existing debt is paid off with another debt obligation, which comes at a lower interest rate, flexible EMIs and perks like EMI holidays, top-up loan facility and more. Here too, the housing loan EMI calculator kicks in, offering you the EMI breakup based on the interest rates and tenure of the refinanced home loan.
Home loans usually involve hefty EMIs that can weigh down your monthly budget. But, if worked properly, you can significantly reduce the monthly repayment outgo.
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