The interest payment of a home loan can equal the loan amount you avail from a bank or a housing finance company over time. For example, an INR 50 lakh loan at 7.70% could lead to interest payments worth INR 48 lakh (approx.) over 20 years through monthly EMIs of INR 40,000 (approx.). But you can curtail such home loan interest payments by being smart in choosing the interest rate, loan amount and tenure. These three dictate how much you will pay to the lender. So, what should you do around these key variables to minimize interest payments? Let’s find out!
Strategies for the Lowest Home Loan Interest Rate
Getting the home loan interest rate reduced to the minimum extent depends on how you negotiate with the lender. But on what basis can you negotiate for the same? This is where your good credit score, healthy relationship with the lender can come in handy. Let’s check their roles in reducing your interest rates.
Compare Home Loan Interest Rate Offers
Don’t get too influenced by the promotional campaigns of lenders claiming their rates as the lowest in the market. Check the rates of all at Wishfin, a pioneer in online loan comparison services in India. Compare the offers and choose the best one in pursuit of your dream home.
Look to Boost Your Credit Score
After figuring out the lowest interest rate deal, the concern remains how to grab it. One of the ways to do so is by having a credit score of more than 750. You can achieve it by being perfect in your existing loan or credit card payments. Lenders these days come with interest rates based on different credit scores that CIBIL and other credit bureaus provide. Of course, other factors such as income and age matter too. But a credit score would most likely hold the maximum relevance to the lowest rate.
Healthy Relationship with the Lender
If you hold a healthy relationship with the lender, be it through deposits or loans, it will help you grab a home loan at a lower interest rate. So, look to lower your home loan interest payment burden using your healthy relationship with the lender.
Home Loan Balance Transfer/Prepayment
In case you could not grab the lowest rate while applying for a home loan, you can do it later using a balance transfer. It’s a process by which the new lender can take away your outstanding balance from the existing one at a lower rate of interest. If done at a lower rate of 0.50-0.80%, it can lead to savings of around INR 3-4 lakh.
Prepayment is one more tool to reduce the interest burden. It’s about paying the outstanding balance in either full or parts to reduce your interest obligations.
How Selecting the Right Loan Amount Helps Contain Interest Payments?
Curbing interest payments also depends on how reasonable the home loan amount is. You can be slightly unorthodox by paying more upfront to the seller. Let’s learn about this smart move below.
Pay More Through Down Payment
Please note that home loans can’t be financed to the extent of the property price. Lenders disburse about 75-90% of the property price as a home loan to borrowers. So, if you’re looking for a home loan of INR 50 lakh, the extent of finance is limited to 80%, implying a minimum down payment of INR 10 lakh (20% of 50 lakh) for the property seller. But if you’ve saved say INR 15 lakh, don’t hesitate to pay that to the seller and get your loan amount reduced by INR 5 lakh. The reduced amount would only help curtail your interest payments. Let’s check the effect in the below table.
|Home Loan Amount (In INR)||Down Payment (In INR)||Interest Payment (In INR)|
Note – Interest calculations made at an interest rate of 7.60% for a tenure of 20 years.
What Should You Do with the Home Loan Tenure?
Often people choose a much longer home loan tenure to service the Equated Monthly Installments (EMIs). The extended tenure does lower the EMI amount but, in return, makes you pay too much interest to the lender. Of course, the expectedly large home loan amount presses most to opt for about 30 years to ensure EMI payments on time. But still, a lot can be saved by doing a few things discussed below.
Reduce Your Tenure with an Increased EMI Amount
Raising the home loan EMI amount beyond the required helps reduce your tenure automatically. With that, the interest burden reduces too. Let’s have a look at the below table to understand this point.
|Loan Amount (In INR)||EMI Amount (In INR)||Tenure (In Months)||Interest Payment (In INR)|
Note – The calculations are made at an interest rate of 7.70% per annum.
Hiking the EMI by INR 4,124 (45,017-40,893) can help you save INR 10,36,246.80 (48,14,398-37,78,151.20). Managing that extra 4,000 odd sum may not be that tough when you can take a loan of INR 50 lakh.
Use the Home Loan EMI Calculator to Choose the Optimal Tenure
Using the home loan EMI calculator only helps you choose the tenure wisely. Use it by putting the values of the loan amount, interest rate and tenure. For a realistic estimate, you should know the average interest rate, which as of now, ranges from 6.65-8.2% per annum across loan amounts. Loan amount up to INR 30 lakh can come at 6.65-7.00%, while those above INR 30-75 lakh can command around 7.20-7.70%. The ones above INR 75 lakh can come at around 7.80-8.20%. So, put the values accordingly and see what they lead to by choosing a relatively shorter tenure. Of course, don’t lose sight of the EMI either. A tenure that helps keep interest obligations under control and ensures an affordable EMI is the one for you.