With amount going up to lakhs and EMIs (Equated Monthly Instalments) lasting up to years, Home Loans certainly give your spendthrift spirit a lot to think about. Controlled expenditure for years is not something anyone likes. However, given that they take a large chunk of the financial burden off your shoulders at the time of need, loans are also something we can’t do without. What one can do, however, is ensure that the loan is sanctioned at the lowest interest rate possible.
It is the interest rate which determines whether your loan ends up being a boon or a bane. The higher it is, the more strain it puts on your wallet. Controlling the interest rate is essentially the magic wand for reducing the interest rate and thereby reducing the total Home Loan cost.
There are plenty of ways to go about it – one can pay a higher down payment or Find a Home Loan Balance Transfer. The several ways one can flick this magic wand and bring down the interest rates include:
Opting for a higher down payment
Down payment refers to the amount paid for by the customer towards the purpose that the loan is applied for. In simple words, it is the part of the total cost borne by the customer. The higher the down payment, the lower the amount of loan that he or she borrows – which also reduces the rate of interest.
Banks and other financial institutions calculate the interest rate based on the principal amount that the customer borrows. The higher the total loan amount, the more money you will have to pay during the entire loan tenure in EMIs. Therefore, higher down payments do cost more in the beginning but are the best way to save money in the longer run.
Deciding the loan tenure
Your loan tenure is undoubtedly the most significant asset – capable of saving your money either in the short-term or long, as you see fit. Loan repayment tenure is inversely proportional to the EMI amount and directly proportional to the rate of interest. In case you go for longer loan tenure, your EMIs will be lower although the overall interest rate will be high. Conversely, in shorter loan tenure, the EMIs will be high and the interest rate, low. As per one’s needs, he or she can decide whether to save more money each month with lower EMIs or save it over the entire course of the loan with a lower interest rate.
Switching your lender
In case you find a lender offering a lower rate of interest than the current one, you can opt for Home Loan Balance Transfer. The market is replete with many established and credible financial institutions eager to serve consumers. It is necessary to check all the Home Loan Balance Transfer offers available before deciding upon a particular lender. Additionally, it is also essential to go through the details of the new lender like loan processing fee, prepayment penalty (if any), and any other charges which may add to the overall cost. Also, take into consideration the amount your current lender may charge you for Housing Loan Balance Transfer.
Part or full prepayment of the loan
If by some circumstance – be it a personal inheritance or professional bonus – you happen to come into some considerable amount of money, it is highly advisable to go for full or part prepayment of the loan. A higher outstanding amount attracts a higher interest rate, and while full prepayment can take care of the entire issue, part-prepayment also serves to bring down the outstanding principal amount. This again brings down the payable interest, thus helping a person reduce his or her Home Loan cost substantially.
Opting for a step-down or flexi EMI plan
Banks, housing finance companies, and several other financial institutions provide customers with what is known as a step-down EMI plan. It is a flexi-EMI kind of scheme wherein the customer availing a loan is charged a higher rate of interest towards the beginning of the loan term, resulting in higher EMIs and both the interest rate and EMIs decrease as the time progresses.
A step-down EMI plan is particularly suited for those opting for a loan close to their retirement as the latter part of the loan tenure, which may coincide with the retirement, puts a lesser financial burden upon them.
Negotiating for lower interest rate
In case an individual has a right standing with a bank he is a customer of, he may b in a position of negotiating with the bank staff or in charge to avail a loan at a lower rate of interest. Sometimes, banks are willing to relent to such negotiations for their existing customers to build brand loyalty and attract more customers as well.
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