If you have availed a Home Loan, you would know that repayments are one of the major monthly expenses you incur. The most frustrating part about paying these interest charges is that it usually leaves little to no room to make any investments or savings for the future.
Now, you probably might have scoured the web to find the current home loan interest rate, if you already have home loan but want to know the better ways to reduce the interest rate burden, only to come up with some mildly useful solutions. This article, however, will provide you with some of the most feasible and effective solutions you can use.
- Increase Repayments if and When you Get a Salary Hike
A majority of Home Loan borrowers usually go for lengthy repayment periods because it offers them a certain degree of flexibility. While this isn’t a bad move to begin with, they tend to stick to the same routine even when they have a larger income at their disposal.
One of the easiest ways to reduce your Home Loan burden is to increase the interest payment as soon as you begin to get a better salary. Say, for instance, you get a hike of 10%, you can increase your interest payment by 5%, which will help you repay the entire loan amount ahead of schedule.
Let’s elucidate this with an example.
Loan amount = Rs.20 lakh for 20 years
Interest rate = 11%
Here’s what a 5% increase in loan interest repayment would look like till the completion of the loan.
|3||22,760||12 years 11 months|
|12||35,308||End of loan term|
This way, increasing your interest rate by 5 % every year will end your 20-year schedule term in just 12 years.
- Pay an Additional EMI Every Year
This is one of the many ways to reduce the massive Home Loan burden you incur upon yourself. How do you do it? Basically, you will need to pay an amount each year equivalent to that of an EMI above your usual payments. For a loan of Rs.20 lakh and a repayment tenure of 20 years, the monthly EMI comes up to Rs.20,644. Using this amount to make an extra payment would bring your tenure down by at least two years.
- Get a Home Loan Transfer
Home Loan Transfers are becoming extremely popular these days because they offer a respite from the strenuous repayment schedules while also helping you cut down on the net interest you pay. Using a Home Loan Balance Transfer, you won’t only reduce the tenure of your loan but will also save a major sum of cash, which would otherwise be spent on interest payments.
- How to Get a Home Loan Transfer?
Getting a HLBT has become relatively easier nowadays, with all major banks and NBFCs offering them to new customers, inclusive of interesting benefits. You will need to find a financial institution that is ready to get your loan transferred, after which you will need to get a letter of consent or an NOC from your existing bank. Once this is done, your bank will transfer the loan to the lender of your choice. However, you will need to be mindful before jumping into a new HLBT deal as you may end up paying more if you haven’t planned well.
- Use Existing Investments to Repay the Loan
You will always have a solution ahead of you if are ready to take advantage of a situation. Say, for instance, you have a considerable amount of gold that is just laying waste in a locker. You can sell the gold and mobilise additional finances to repay a large chunk of the loan or even foreclose the loan.
Apart from the gold, you can also take a loan against your PPF or other such saving instruments to clear it. If you opt for a loan against a PPF, the interest rate will usually be 1 %- 2% of the prevailing interest of your fund. The current interest rate on PPF is 8.70%, which means that you would get a loan at 9.70% or slightly higher. This is way lesser than any Home Loan you will ever get. So, if you opt for this, you will save a lot of money on interest payments.
However, you will need to make sure to repay these loans within a span of 36 months. In case you don’t, an additional interest will be levied on your existing loan. So, a careful move based on an analysis of the percentages and the loan would help you reduce the burden of paying a higher interest.
- Modify your Lifestyle
You might think this is pointless—earning all your life to get that perfect home only to live like a pauper instead of luxury. But that’s not what this is about and nobody is expecting you to tone down your lifestyle.
Every individual has a way of splurging—sometimes on completely unnecessary things that they don’t even care enough about. Assess your spending patterns. If you find a particular spending habit that you feel isn’t contributing much to your life, make sure to get rid of such investments. Sometimes this could be as simple as taking home-cooked food as opposed to eating out at restaurants every day. It could be about your shopping habits, too, wherein you will need to shop during an off-season sale rather than at times when fresh stocks arrive.
You probably already know that repaying a Home Loan can span an entire lifetime, even when you are doing the best you can. So, actively try to integrate any one of these simpler ways into your life to decrease the burden an online Home Loan, or any loan for that matter, brings with it.