- How can you save a huge amount on a home loan?
- Know here the methods that can help ensure the same
The primary need for a large number of people in India is still to own their homes. But the high prices of real estate is the biggest hurdle that they have to face initially. A home loan from Banks, Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) helps individuals tackle this hurdle of high prices of homes. With a home loan, an individual can opt for the required loan amount and repay it within a fixed tenure. Since a home loan is taken for long, you can end up paying much more if you don’t do due diligence.
It is important for an individual to ensure maximum savings on a Home Loan as it can help save a lot of money. Every individual wants to save some amount while opting for a home loan and there are a few methods by which maximum savings on a home loan can be achieved. These methods start from right at the beginning of your home loan journey and go along with it. In this article, we will be telling you what are the things that you can do to ensure you save a substantial amount on a home loan. Keep reading to know more!
Know about the Methods to Save Maximum Amount on a Home Loan
Home Loans are generally considered to be big-ticket purchases. An individual repays the home loan amount with the hard-earned money that’s why you should know all the methods by which you can have maximum savings on a home loan. These methods are – Opt for Best Home Loan Interest Rates, Choose lower Processing Fees, Balance Transfer Facility, Prepayment Facility, Pay more Down Payment amount and go for a shorter tenure. These methods are pretty simple to keep in mind and can be applied easily by anyone.
All these methods are mentioned below in detail so that you can understand each of them comfortably and save the maximum amount on a home loan. Check it out!
Opt for Best Interest Rates
The first thing that an individual looks for in any kind of loan is the interest rate offered by the lender. So, the interest rate is one of the most crucial factors of a home loan. Since home loans are secured loans, the interest rates on the loan facility are not that high and generally ranges from 7% to 9% per annum and changes from one lender to another lender. Also, Home loan interest rates depend on a few factors – Your Loan Amount, Property Location, Property Value, existing obligations and Monthly Income. Before finalizing the rate of interest, lenders check these factors.
To make sure that you have maximum savings on a home loan, you should choose the best home loan interest rate for you. You must be thinking why? The reason behind this is your EMI amount depends directly on the interest rates provided by the lender. Higher the interest rates, higher would be your EMI amount. So, on choosing lower interest rates, you could reduce your EMI amount and interest outgo substantially. Let’s understand this through an example.
Suppose an individual wants to opt for a home loan amount of INR 25 lakh for 15 years. We are taking two different interest rates of 7.75% and 9% per annum respectively.
|Loan Amount||Rate of Interest||EMI Amount||Interest Outgo|
|INR 25 lakh||7.75% per annum||INR 23,532||INR 17,35,741|
|INR 25 lakh||9% per annum||INR 25,357||INR 20,64,200|
You can see how choosing a lower rate of interest can save you approximately INR 2,000 per month when it comes to the EMI amount and INR 3 lakh in the case of interest outgo. So, you can understand how opting for the best interest rates can ensure you maximum savings on a home loan.
Other than this, we are also showing the best home loan interest rates of the top lenders so that you can choose the suitable one for you. Check the below table.
|Top Lenders||Home Loan Interest Rates (in per annum)|
|State Bank of India (SBI)||8.05%-8.55%|
|Axis Bank||7.60% - 8.05%|
|ICICI Bank||8.75% - 9.80%|
|Citibank||6.50% - 7.40%|
|LIC Housing Finance (LIC HFL)||8.65% - 10.25%|
|Tata Capital||7.75% onwards|
|HDFC Limited||8.65% - 9.95%|
|Bank of India||6.90% - 8.75%|
|PNB Housing Finance (PNBHFL)||8.50% - 10.35%|
|Piramal Capital & Housing Finance (PCHF)||10.50% Onwards|
Paying a Higher Down Payment
Paying a higher down payment is also one of the efficient methods by which you can have huge savings on your home loan. But if you are thinking right now that what is this down payment in the first place then you should understand this first. Well, the down payment (DP) amount is the portion of your overall home loan price that you need to personally fund from your own sources. The down payment generally ranges from 10% to 25% of the overall price of the property which simply means lenders can provide you the maximum 90% of the overall price as the home loan amount. Some of the sources by which you can arrange your DP are Fixed Deposit, Recurring Deposit, Mutual Funds, etc.
Suppose you want to opt for a home loan of property worth INR 45 lakh then the lender can only provide you a maximum of 80% of the overall price. The loan amount you can get is fixed at a maximum of INR 36 lakh.
So, to have maximum savings on your home loan, you can choose to pay the higher down payment amount, which will automatically reduce your loan amount. Due to the lower loan amount, your interest rates will also be lower as compared to higher loan amounts.
Other than this, when you opt for a lower loan amount, the chances are high that lenders take less time in sanctioning your loan application as compared to higher loan amounts. The reason behind this is the less risk they face in providing lower amounts. Also, when you pay the higher down payment, your processing fees will also be lower as it primarily depends on the required loan amount.
Opting for Balance Transfer Facility
For home loan borrowers who want to ensure maximum savings on a Home Loan, Balance Transfer Facility is a pretty useful option. With this, a borrower can transfer his or her outstanding principal balance to a different lender providing lower interest rates than the current one. This will help in reducing both the principal amount and interest outgo. Individuals who want to opt for this facility will need to pay certain fees that will either be a flat amount or a certain percentage of the principal outstanding amount.
However, the repayment behavior of the borrower must be good to get this facility. Your application may get rejected if you have missed a few payments. Apart from this, a borrower must have a good credit score so that the lender can easily sanction the home loan. The lender will also check your property value and location to make the final decision.
To ensure you save the maximum amount on a home loan, you should opt for the Balance transfer Facility in the initial years of your loan so that you can save the interest outgo as it tends to be higher during the initial years. Like, if your home loan is for 15 years then it would be wise to opt for the Balance Transfer facility within the 5-8 years of the loan.
Let’s give you an example to show how much amount you can save via a Balance Transfer Facility. Suppose an individual opted for a home loan of INR 30 lakh for 15 years at an interest rate of 8.75% per annum. For this amount, he must be paying INR 29,983 as the EMI amount. Now, after 6 years, the individual wants to opt for the Balance Transfer at an interest rate of 7.50% per annum. Let’s see how much money he can save in the below table.
|Existing Loan Amount||INR 30 lakh|
|Interest Rate||8.75% per annum|
|EMI at the current interest rate of 8.75% per annum||INR 29,983|
|Estimated Interest Outgo at 8.75% per annum||INR 23,97,023|
|Interest Paid till now ( 6 Years )||INR 13,94,584|
|Outstanding Balance at the end of 6 years||INR 22,35,775|
|EMI at the new interest rate of 7.50% per annum||INR 28,531|
|Interest Outgo at the new interest rate of 7.50% per annum||INR 8,45,547|
|Interest Paid till now + Interest for the remaining 9 years||INR 22,40,131|
|Estimated EMI Saving||INR 1,452|
|Estimated Interest Savings||INR 1,56,892|
From the above table, you can clearly see that by opting for the Balance Transfer Facility, you can save INR 1,452 per month on the EMI amount and INR 1,56,892 when it is about the interest outgo. Any person who wants to save a maximum amount on a home loan, the Balance Transfer facility could be a suitable option for you.
Opt for the Prepayment Facility
With the prepayment facility provided to the borrowers, an individual can save a huge amount on the interest outgo and thus ensure maximum savings on a home loan. With this facility, you can make part or full payment of your loan amount before the fixed tenure of your home loan. When you opt for this facility, you can reduce both the interest amount and principal outstanding amount during your tenure.
The best part about this facility is that you don’t need to pay any charges for this facility if you have taken the home loan at a floating rate of interest.
Let’s understand the impact of the prepayment facility on a home loan with an example. An applicant who has a home loan of INR 40 lakh for 20 years at 7.50% per annum. The EMI amount will be INR 32,224. Other details are shown in the below table.
|Loan Amount||INR 40 lakh|
|Interest Rate||7.50% per annum|
|EMI at the current interest rate of 7.75% per annum||INR 32,224|
|Estimated Interest Outgo at 7.75% per annum||INR 37,33,695|
|Outstanding Balance at the end of 5 years||INR 34,76,083|
Now, after 5 years, the applicant wants a part prepayment of INR 5 lakh to reduce the principal outstanding balance.
At the end of 5 years, the principal outstanding amount is INR 34,76,083
After paying INR 5 lakh, the new balance will be INR 29,76,083.
So, let’s check the situation after making the part prepayment of INR 5 lakh.
Some of the other important details after making the prepayment are in the below table. Don’t forget to check them!
|Part prepayment Amount Paid after 5 years||INR 5 lakh|
|New Principal Outstanding Amount||INR 29,76,083|
|New EMI amount||INR 27,589|
|Interest Outgo after prepayment||INR 19,89,875|
|Interest Paid till now + Interest for the remaining Tenure of 15 Years||INR 33,99,382|
|Estimated EMI Saving||INR 4,635|
|Estimated Interest Savings||INR 3,34,313|
So, from the above table, you can clearly see that after prepaying the home loan, you can save around INR 4,635 in the EMI amount while INR around INR 3 lakh in the interest outgo.
Opt for a Shorter Tenure
Home Loans are generally considered to be taken for a longer period that range from 15 to 20 years on average. When you choose a longer repayment period, your EMI amount will be lower and vice versa. One of the ways to ensure maximum savings on a home loan is to choose a shorter tenure as it can reduce your EMI amount and the interest outgo over the tenure of your home loan. But by choosing a shorter tenure, your EMI amount will be higher as compared to a longer tenure, so you should choose the tenure according to your repayment capacity.
Let’s understand this through an example. On taking a home loan of INR 30 lakh at interest rate of 7.75% per annum. We are taking two different tenures of 15 years and 20 years.
On taking the tenure of 15 years, the EMI amount will be INR 28,238 and the interest outgo will be INR 20,82,889.
On taking the tenure of 20 years, the EMI amount will be INR 24,628 and the interest outgo will be INR 29,10,830.
So, you can see that on choosing a shorter tenure, you can save around INR 8,27,941 in the interest outgo but you will have to pay around INR 4,000 more as compared to a 20-year home loan.
So, these are the tips that you can implement to ensure maximum savings on a home loan. You just need to keep them in mind before applying for a home loan.