5 Simple Tips to Save Money on Home Loan Repayment

September 3, 2021 Mutual Fund

Owning a home is one of the important goals we aspire to achieve in life. But buying a home needs huge financial support. A home loan is a common type of loan that individuals can usually borrow from a bank/financial institution to fulfil the goal of having their own house.

A home loan is a costly affair in any case; many people are emotionally sensitive about owning a debt-free home. To this end, many people try to repay their loans as soon as possible and reduce their financial burden. However, it is not easy to pay off your home loan when the loan amount is very high. Thus, it is always good to plan in advance and save extra money for home loan repayment.

Here are few simple tips to save money on Home Loan Repayment:

1.Do your research:

When you apply for a loan, you must check and compare the rate of interest, processing fee, and other charges of multiple banks and housing finance companies. This process will help you to get the best rate, and you will not regret having to pay extra interest later.

Moreover, you might see many leading banks / NBFCs offering a similar rate of interest. Hence, you should also check the processing fee and other related charges. Always compare the total loan amount and other costs. By focusing only on the rate of interest, you might end up paying higher costs.

2. Negotiate with the bank/housing finance company:

If you have been associated with the bank for a longer period and have good credit records, then you may request your relationship manager or any senior manager from your branch to reduce the rate of interest. Although it is not guaranteed that the bank will lower your interest rate, they will consider your request on the basis of your long banking relationship and may offer the best rate possible.

If the rate of interest on your home loan is non-negotiable, then they might give you some offer in some other products based on your banking relations. However, if the bank accepts your request, you can save a hefty amount on the home loan interest.

3. Prepay your loan:

Most people opt for a long-term repayment period because the home loan amount is usually very high, and it helps them reduce the EMI amount. But, it will be best if you keep in mind that the longer duration means a higher amount of interest outgo. Therefore, you should try to prepay the loan as and when you have excess funds after putting aside a sufficient amount for emergencies.

You can prepay your home loan either in part or in full. It reduces your outstanding principal and also the considerable interest burden. You can choose to either reduce your EMI by keeping the loan duration same or reduce the loan duration by keeping the EMI same. The latter would be a wiser choice.

Make sure you confirm the prepayment charges with your bank and calculate the actual amount you would be saving after considering the tax benefits you get with the home loan.

4. Make a large down payment:

Making a large down payment has various benefits, such as increased creditworthiness, the lower principal that ultimately saves your money on interest, lower processing fee, etc. The most important advantage of making a sizeable down payment is that you may be offered a lower rate of interest. It also reduces your EMI burden as the principal is lower. However, to make a large down payment, you should start saving in advance. You can invest your savings into diversified equity schemes for short and medium terms as per your goals. Such an investment will help you grow your savings to a sizeable down payment.

5. Balance Transfer:

You can think of a home loan balance transfer if your existing lender rejects your request to reduce the rate of interest or if you are not satisfied with the services provided by your current lender. If another bank or finance company offers a better interest rate, you can transfer your outstanding home loan to them. You can save a hefty amount on your home loan interest by transferring your outstanding loan. The process of a home loan balance transfer is easy and quick. Make sure you do your research thoroughly and choose the lender offering the best rate for a balance transfer.

But, if you have already cleared the major part of your loan, a balance transfer may not be the best solution since you will have to pay the processing fee and other related charges to the new bank, which might cost you more than your interest savings.

To conclude…

Although home loans can be expensive, you should follow these tips to save money on home loan repayment. Always do your research before applying for any loan, which might feel time-consuming and tedious, but it will save you much more in the long run. Also, stay updated with the latest financial news and offers that will help you negotiate better terms with your existing lender or in case of a home loan balance transfer. Finally, make sure you understand all the terms and conditions and are cognizant of all the hidden charges beforehand. Remember, to achieve financial freedom, you must inculcate financial discipline.

This article first appeared on PersonalFN here