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5 Ways To Reduce Your Home Loan Interest Rate

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5 Ways To Reduce Your Home Loan Interest Rate

As 2019 continues to be a great year for investing in real estate, homebuyers are stressed about the increasing interest rate on home loans

Purchasing a house is a dream come true for most people in the country. With property rates aiming for the sky, proper planning about the repayment of the loan has to be sketched out by homebuyers to avoid becoming a defaulter.

Therefore, as interest rates on home loans are rising tremendously, RealtyNXT lists the various ways by which homeowners can reduce the interest rate on their home loans.

1. Higher Down Payments

A down payment refers to an initial payment, usually made in cash while purchasing an asset or a good. When obtaining a home loan, a homebuyer must opt for a higher down payment. This is because, a higher down payment, reduces the principal amount. A lower principal amount implies that the interest rate will be lower.

As per RBI guidelines in India, at least 10 percent down payment must be made in property of upto Rs 30 lakh, 20 percent on a property worth Rs 30 to 75 lakh and 25 percent in a property over Rs 75 lakh.

2. Regular payment of EMIs

Financial experts suggest that EMIs must always be less than 50 percent of the homeowner’s income. This makes sure that the homeowner can maintain a lower debt-to-income ratio which makes it affordable to pay the EMI along with other expenses.

When EMIs are affordable, it can be assured that homeowners can make regular EMI payments. One must understand that home loans consist of two parts. The first is the interest charged on the borrowed sum and second is the principal. The first few years may be paid towards the levied interest and less towards the principal.

Therefore, during this time, it is beneficial if the homeowner makes part prepayments whenever they earn something extra like a bonus or a salary hike. Making part prepayment on the home loan can help reduce the total interest rate on the loan. Few Indian financial service companies allow individuals to make such prepayments without charging any additional fee.

3. Annual Increase Of EMI

It is suggested that homeowners make the choice of increasing their EMIs by a small percentage annually. A salaried individual usually witnesses an increase in net income every year. Thus, they must choose to increase their EMIs as well so that they can save the interest amount to some extent.

However, the increase in the percentage of the EMI must be in accordance with the increase in the homeowner’s income.

4. Pay Extra EMIs

Homeowners looking to decrease the interest rate on their home loans must pay extra EMIs whenever possible. This may sound tough but it helps to a great extent in the long run. Paying extra EMIs reduces the principal amount thus making the interest rate go lower.

Also, the homeowner’s lending institution like the bank or the financial services company will not complain when they receive extra payment.

5. Switching To Another Bank

Homeowners must keep an eye on the various interest rates offered in the market. There can be instances when other banks offer home loans with lower interest rates than the current bank from which the homeowner has borrowed.

Therefore, in the occurrence of such an instance, borrowers can switch to another bank for the home loan. However, all terms and conditions must be checked before making the switch.

ALSO READ: Top Reasons To Buy A Home At A Young Age

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