Top 5 Tips to Save On Your Home Loan

The past few years were extremely happy times for the ones with a home loan. The rate of interest fell to the lowest in just 20 years, and this loan become attractive many of you even saw a shrink in your home loan EMIs of all financial institutions whether Muthoot finance home loan, L&T housing finance, Bajaj Finserv, Bank of India, etc. However, now rates of interest are rising and so are the home loan EMIs owing to the rise in RBI’s repo rate. 

Home loans are a poorly understood credit option. Many of the borrowers consider it as a fill-out, shut-it, and forget-it approach for availing loan. However, home loans are one of the major expenditures you tend to encounter. And you can simply save a lot of money if you manage the same actively. Listed here are the top 5 simple tips on a home loan, you must be well-versed with. 

When you begin 

Pre-EMIs are basically enticing offerings where you must pay a lower-than-expected loan EMI until you take over the property possession. However, here is what’s going on behind you, you are repaying only the loan interest. You are not making payment of the principal constituent and the loan stays as it is. And in the case, the project gets delayed or stuck, you might be on the pre-EMI for several years. 

This may sound great for home loan lenders, but this is not good for you. Whenever you avail a home loan, you must begin repaying the principal constituent. To lower the interest constituent, you should begin lowering the principal component as fast as possible. 

Tip no. 1 – Skip the pre-EMI approach and opt for the regular EMI mode instantly. 

Every 3 months 

The home loan rate of interest is not fixed. It changes each time the Reserve Bank of India makes changes to the policy rates. So, the rate of interest on your loan can change every year. So, it is crucial for you to keep a close watch on the action of your lender. The lender may change the loan EMI or may even change the repayment tenure while keeping your loan EMI the same. In either way, your loan signifies that it has changed and so is the interest cost. 

Also Check: L&T Housing Finance

Do not go for the fill-out, shut it and forget it mode. Assess your home loan every 3 months. Generate your home loan statement and check the listed – 

∙       Has your repayment tenure changed?

∙       Has your rate of interest changed?

∙       Has your loan EMI changed?

Tip no. 2 – Assess your loan every 3 months. 

In early days

When you avail a home loan, you might require stretching your household budget to accommodate the home security system loan EMI. Over a long span, your income may rise, or you may get a bonus occasionally or you might avail a windfall income. Using such income or opportunities, you can go for the prepayment route towards the loan. And every time you make the prepayment, ensure to ask the lender to lower your loan repayment tenure.

It may be enticing for the EMI to be reduced. However, that is not a prudent choice. A higher loan equates to a higher interest constituent. Thus, by lowering the repayment loan tenure, you can lower your interest constituent. Likewise, when the rate of interest decreases, the lender may lower your loan EMI. At this point, you must ensure to approach the lender and ask to keep the loan EMI the same and lower the repayment tenure instead. 

Tip no. 3 – Prepay whenever you can and select a reduced tenure and not reduce your loan EMI. 

In the middle

Whenever the rate of interest increases, financial institutions generally do not enhance your home loan EMI. In place, they enhance your repayment tenure. While you hardly feel its impact on your monthly budget, note that the repercussions of this are enormous. 

Particulars	Rate of interest (6.70 per cent per annum)	Rate of interest (8.60 per cent per annum)	Impact
Outstanding loan proceeds	Rs 1 crore	Same	0
Loan EMI	Rs 88,214	Same	0
Repayment tenure	180 months	+234 months	+54 months
Overall interest cost	Rs 58.78 lakh	Rs 106.72 lakh	+Rs 47.94 lakh

 

For instance, if the rate of interest rises by nearly 2 per cent and you keep the loan EMI unchanged, you can end up paying nearly Rs 50 lakh more on the Rs 1 crore loan. You can easily find out such calculations using an online calculator available on most lenders’ sites.

It is always best to combat an increment in the rate of interest by enhancing your loan EMI or by making instant prepayments. Combined action lowers the impact of interest rate hikes. 

Tip no. 4 – When the rate of interest increases, prepay and/or enhance the loan EMI.

Towards the end

As you move towards the end of your home loan repayment tenure, you might get tempted to pay the same quickly and be done. Especially if you have been prepaying your loan aggressively, this might infer an obvious thing. However, do not go on rush to close the loan deal. Note that by the end of the tenure, the EMI is majorly the principal that you are serving, and the interest constituent is a very small fraction. 

In case you hold the funds to close your home loan in the last bit, it is usually better to include the funds in your investment portfolio instead of paying it off to the lender. 

Tip no. 5 – At the end of a home loan repayment tenure, avoid rushing to close the same. 

Emotional bias

Home loans come with plenty of emotional challenges. They permit you to reside in the home of your choice. However, often they carry a massive emotional burden too. Additionally, the home loan arithmetic and EMIs are intuitively not obvious. It is difficult to find out how much interest constituent you may be serving. And how much can you save by making small prepayments or making changes to your home loan EMI? For this, ensure to use an online home loan calculator. Using it, you can conduct most of the home loan-linked computations instantly with ease.  

The past few years were extremely happy times for the ones with a home loan. The rate of interest fell to the lowest in just 20 years, and this loan become attractive many of you even saw a shrink in your home loan EMIs of all financial institutions whether Muthoot finance home loan, L&T housing…