Buying a home is a big accomplishment in life as it involves a considerable amount. The boom in real estate prices has made an investment in property harder. Many of us have to resort to a home loan to be able to make our lifetime dream come true. A home loan, however, can become a huge liability that runs for the long term and needs to be managed well to keep your finances on track.
A home loan is a long-term obligation that could remain for as long as 30 years. You should be able to manage your funds consistently for that period in order to maintain a good track record. Considering the overall cost incurred at the end of the repayment terms, this obligation could be a significant burden on your pocket. You should find ways to decrease the interest to reduce the financial burden. One of the best ways to manage the financial commitment is to find ways to lower the home loan interest cost.
Here are a few helpful tips to reduce your home loan interest:
#1. Find the lender offering the lowest interest rate
Undertake thorough market research to find out the lender who is offering the lowest interest rate before applying for a home loan. It would help to compare other costs to factor in the overall cost of the loan. Tata capital home loan rates start at 6.90% p.a.and is on par with the lending rates of some of the top lenders in the market.
#2. Choose a short tenure
Before choosing the tenure, assess your repayment capacity. Consolidate your existing obligations like mandatory bills and credit card dues being paid out of your current income and arrive at the disposable income available for your sustenance after providing for the proposed EMI. Use an EMI calculator and do the assessment with various combinations of the rate of interest and tenure till you arrive at an EMI that suits your pocket. Tenure and interest are the two crucial aspects that impact the cost of the home loan. Choosing a shorter tenure amounts to a lesser interest payout. The maximum loan tenure available for Tata Capital Home Loan is 30 years.
Some of the banks provide various EMI options like Step-up EMI and Step-down EMI. With Step-up EMI, you can choose a lower EMI and increase the same as and when you progress in your career. This will help you to reduce the loan tenure and save on the interest cost. Step-up EMI benefits younger borrowers who have just started their career.
Step-down EMI will benefit borrowers who opt for a home loan during the fag end of their career. With this, you can opt for a higher EMI in the beginning and lower the EMI towards the end of your service.
#3. Make periodical prepayments
The EMI consists of payments towards two components, i.e., interest and the principal. In the initial years, most of the EMI will be adjusted towards the interest. If you intend to reduce the tenure of the loan by making regular prepayments, then do so at the beginning of the repayment term to reduce the interest cost. The incentives, bonus and increments can be utilised to make such repayments.
Even before applying for a home loan, be aware of the prepayment policy of the lender. Some of the lenders do not allow prepayments of the loan. If prepayments are allowed, get an idea about the charges for such prepayments. Lenders who permit prepayments collect charges for such prepayments.
The prepayment charges for Tata Capital Home Loanare nominal. No prepayment charges for home loans to individuals at a floating rate if such prepayments are made out of their own funds. For non-individuals, no charges for prepayment up to 25% of the outstanding principal amount for loans availed at a floating cost. For prepayments made over 25% of the outstanding principal amount, 2% on the prepaid amount over 25% of the outstanding principal amount will be charged.
#4.Opt for a home loan balance transfer
Stay vigilant about prevailing home loan rates. If you find a lender who is offering a home loan at a lower rate than your existing lender, opt for a balance transfer. Opting for a balance transfer during the initial years is more beneficial as you will be paying the majority of the interest during the initial years. Please do not go for an extension in tenure as it will not help in cutting the interest cost. Instead, keeping the tenure at the existing remaining tenure will help you save on the interest outgo.
Exercising due diligence before and after availing of the home loan will help you reduce the interest on the home loan to a large extent.
Benefits of applying for a home loan
Lack of funds for investing in real estate is not the only reason to avail of a home loan. A home loan comes with a lot of benefits that can lure a prospective buyer who otherwise could have managed the buy with their own savings. Some of the persuading benefits of a home loan are as given below:
- Home loans are the cheapest borrowing tools.
- It is one of the most significant tax instruments with exemptions under Section 24, Section 80C, and Section 80EEA of the Income Tax Act.
- Opting for a personal loan to cater to a liquidity crunch while planning an investment in property is not a wise move as it is highly-priced. You can save the loan for future uncertainties. A home loan is much cheaper and is available at an interest rate as low as 6.65% p.a.depending on your credit score.
- Banks get thorough legal scrutiny of the property documents before sanctioning a home loan to rule out any legal issues. Once all the legalities have been taken care of, you can rest assured that your investment is safe.
- No prepayment charges are there for a loan availed at the floating rate if the prepayment is done out of its own sources.