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Home Loan interest rates in India range between 8% and 12%, depending on the lender and the loan amount. A Home Loan is the biggest liability you must repay for a long tenure.Home Loan EMIs take away a big chunk of your income every month. Hence, paying a sizeable portion of your income for most of your working life can affect your financial well-being.It is important to reduce the cost of your Home Loan by reducing the interest rate. A shorter loan tenure results in faster loan repayment, thus lowering the interest rate. Read ahead if you are wondering how to reduce Home Loan tenure.Also read: Home Loan eligibility, features and benefits
Ways to reduce Home Loan interest rates
Your loan amount, interest rate, and tenure determine your monthly instalments or EMIs. To repay your Home Loan efficiently at low-interest rates, keep a check on how the composition of your EMI changes with any revisions in interest rates, plan and follow the steps given below.
1. Opt for a shorter tenure
Your Home Loan tenure decides the interest you will pay on the loan amount. Longer tenure reduces the EMI value, but you pay more interest as the interest outgo increases. However, shorter loan tenure reduces the overall payable interest.To better understand the difference, use an EMI calculator and see how the interest rate changes with a shorter loan tenure. Carefully assess the impact of various loan tenures on your EMI.Also read: What is a Home Loan Calculator? How does it Work?
2. Consider making a partial prepayment
When your loan tenure begins, the first few years of instalments contribute more towards the interest. Making partial prepayments can bring down the principal value. Floating interest rate Home Loans are flexible to make partial prepayments. There are no foreclosure charges for making prepayments.Partial prepayment is a good idea because it reduces the loan principal amount, thus reducing the interest rate and loan tenure. If you want to reduce your EMI to reduce the burden on monthly income and keep the tenure the same, you can get the EMI adjusted after partial payment.
3. Compare interest rates online
Before finalising your Home Loan, research and compare interest rates online. It will give you an idea of the different Home Loans offered and the interest rates other lenders charge. The comparison will help you select the best product and negotiate the best terms for your Home Loan.
4. Refinance your Home Loan
Suppose your lender is charging a high-interest rate. In that case, you can compare the interest rates of other lenders and refinance your Home Loan with a different lender offering lower interest rates. There is no penalty for shifting a Home Loan with a floating interest rate.An important point here is to consider other costs like processing fees, administration charges, legal fees, etc. Understand all the pros and cons of refinancing before you decide to refinance.
5. Pay a higher down payment
When you apply for a Home Loan, you must pay 10% to 20% of the property's value as a down payment. Instead of paying the minimum required amount, pay the maximum down payment possible to reduce your principal amount. It will ultimately result in a lower interest rate.
- Remember that many other costs are involved in a home purchase deal and not just the home's value. You have to pay stamp duty and registration charges as well. Considering these additional costs, make investments to bear such expenses without depending too much on debt.
Also read: How to Make Home Loan Down Payment for Your House?
6. Pay a higher EMI
When you increase your EMI value, your monthly contribution towards the Home Loan increases, and the loan gets repaid faster, thus automatically reducing the overall interest payment. There are no charges to increase the EMI value. You can contact your lender to get the EMI revised.This option is only suitable for those who can afford an increased EMI. For example, for a 20-year Home Loan, a 5% increase in EMI every year may result in repayment in less than 13 years.
7. Improve your credit score
A good credit score makes you eligible for a low-interest Home Loan. Your CIBIL score is important for a Home Loan because a Home Loan is a long-term liability, and lenders prefer applicants with a good repayment history.Suppose your credit score has improved since you took a Home Loan due to increased income or a better occupation profile. In that case, you can ask your current lender to adjust the interest rates or transfer your Home Loan balance to a lender offering better rates.
8. Shift from a fixed rate to a floating rate
If your Home Loan is at a fixed rate, there is a high chance that you are paying a higher interest rate. It would help if you shifted to a floating interest rate so that you can benefit from any changes or drops in the interest rates.Also read: Fixed vs Floating - Which Interest Rate is Best for Home Loan?
Key Takeaway
- To get the best deal on your Home Loan, do your homework well. Understand how interest rates and EMIs are calculated. Learn various Home Loan terminologies to understand all the terms and conditions of the Home Loan.
- Follow the tips mentioned above and save a substantial amount on your Home Loan by reducing interest rates.
FAQS - FREQUENTLY ASKED QUESTIONS
Can we reduce the rate of interest on Home Loans ?
Yes, you can reduce the interest rate on Home Loans by following the given tips -
Prepay parts of your loan
Select a short loan tenure
Pay a high down payment
Select a floating interest rate
Maintain a good credit score
How can I ask my bank to reduce my Home Loan interest rate ?
If your bank is offering Home Loans to new borrowers at a lower interest rate, ask the bank to reprice your Home Loan for a lower interest rate. However, the bank might charge a processing fee for repricing the Home Loan. If you maintain a good credit score, it becomes easier to negotiate for a lower interest rate.
How do you reduce Home Loan interest on EMI ?
To reduce your Home Loan interest amount, marginally increasing your EMI will result in a faster prepayment, reducing your overall payable interest. A mere 5% increase in EMI yearly can help you prepay a 20-year Home Loan in less than 13 years.
Can I lower my loan interest rate ?
Yes, you can get your Home Loan interest rate reduced.
If you maintain a good credit history and are an existing customer, you can ask your lender to reprice the loan.
Suppose you have a good relationship with your lender. The lender will not refuse your request to revise interest rates if you are a valued customer and bring good business.
Which is a better option - reducing loan tenure or EMI ?
Reducing EMI is a good option for people with many debts. A lower EMI will reduce the burden on their income. Remember that reduced EMI means a longer tenure, which increases overall interest payment. But if you are wondering how to reduce Home Loan tenure, remember that reducing loan tenure will help you repay the loan faster, reducing your overall interest outgo. Select an option depending on your financial status and obligations.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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