Home Finance Save Lakhs on Home Loan Repayment – Smart Tips & Loan Repayment Strategies

Save Lakhs on Home Loan Repayment – Smart Tips & Loan Repayment Strategies

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A home loan is one of the biggest financial commitments in an individual’s portfolio. Today, thanks to the availability of numerous home loan deals, dozens of lenders and HFCs, getting a home loan is easier than ever before. The biggest challenge here is repaying the home loan on time. 

Paying off a home loan is a challenge – primarily due to the longer tenures. Unlike personal loans and bike loans, which are generally short-term, home loans have a longer-term ranging from 10 to 30 years. So, you have to ensure that you have a steady source of income to pay off the loan as per schedule. 

With that said, you can save lakhs on home loan repayment. Yes, you read that right – it’s possible to cut down the repayment amount. Continue reading to find the best tips and strategies to save money while repaying your home loan. 

Tips to Save Money on Home Loan Repayment 

Home loans are big-ticket, long-tenure loans. As a result, the interest repaid on a home loan is usually on the higher side. However, with proper planning and smart strategies, you can save money on home loan repayment. 

#1: Do Your Homework

The critical step to reducing home loan outgo is to select the right loan offer. Leading banks and HFCs have steadily reduced home loan interest rates since the last quarter of 2020. While this helped in boosting home loan demand, it’s a huge benefit for home loan borrowers. Experts predict that low-interest rates are here to stay, despite the pandemic. 

Several leading lenders like State Bank of India, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, LIC Housing Finance, Axis Bank have reduced home loan interest rates in 2020 and even slashed them further in 2021. Currently, home loan rates start as low as 6.65%. 

Top Home Loan Interest Rates for 2021

Here’s a quick comparison chart that lists out the current interest rates at leading lenders. 

Lender Interest Rate(%)
Axis Bank 6.90% – 11.50% 
Bank of Baroda 6.75% – 8.60% 
Bajaj Finserv 6.75% onwards 
Bank of India 6.95% – 8.35% 
Bank of Maharashtra 6.90% – 8.40% 
Canara Bank 6.90% – 8.90% 
HDFC Ltd 6.75% – 7.80% 
ICICI Bank 6.75% – 7.55% 
Kotak Mahindra Bank 6.65% – 7.30%
LIC Housing 6.90% – 8.05%
Punjab National Bank 6.80% – 8.00% 
Punjab & Sind Bank 6.65% – 7.60%
State Bank of India 6.70% – 7.75%
Tata Capital 6.90% onwards
UCO Bank 6.90% – 7.25%

 

  • If you’re on the lookout for a new home loan, it makes sense to compare the interest rates offered by different lenders. Loan aggregator portals like CreditMantri make it easy to compare and evaluate interests provided by other lenders quickly. Compare and pick the lender who offers you the best deal.
  • Make sure to consider the other factors besides the interest rates. Two banks may offer the same interest rate, but there might be differences in processing fee and additional charges. So, while evaluating lenders, make sure to consider all costs. 

Not doing adequate research before applying for a home loan can cost you additional expenses that can be easily avoided.

#2: Save Before You Apply for a Home Loan 

Home loan preparations should start long before you apply for one. Take some time (around six months to one year) saving for the down payment. Invest your money in short-term funds to pay for the down payment. The larger the down payment, the lower the loan amount and lesser the interest outgo. So, try to save a large down payment to save money on the interest payable. 

#3: Negotiate with the Lender to Reduce Interest Rates 

If you’re on a floating loan rate, then the interest rate on your home loan will be automatically changed as per market conditions. However, if you’re on a fixed loan rate, your repayment is set as per the initial interest rates. 

However, you can still negotiate with the lender to adjust your ongoing interest rates. This is likely to work out if you have been a customer with the bank for a long time and maintain other investments with the bank. 

Get in touch with your relationship manager at your bank to see if it’s possible to negotiate and reduce ongoing interest rates. 

#4: Prepay your Loan 

Prepaying an ongoing home loan ahead of schedule is a great way to reduce the total interest payable. However, prepaying a home loan is easier said than done. You have to maintain financial discipline, budget your finances, and plan accordingly to repay the outstanding loan amount in one go. Alternatively, you can also part-pay the balance to reduce the due loan amount and interest balance. 

Before you prepay your home loan, make sure to calculate the prepayment charges and other fees to see if the savings are worth it. 

#5: Go for a Home Loan Balance Transfer 

A home loan balance transfer is the process of transferring an ongoing home loan from one bank to another. The main reason for a home loan balance transfer is to take advantage of the lower interest rates offered by the new lender. Balance transfer helps to cut down the interest amount significantly. 

With the currently prevailing low home loan interest rates, it makes sense for existing home loan borrowers to switch their loans from a borrower with high rates to lenders offering lower interest rates. Contrary to popular misconception, a home loan balance transfer is not complicated and easy provided you have the proper documents and meet the eligibility conditions specified by the new borrower. 

  • Here’s an example. Let’s say a customer has taken a home loan for Rs. 30 lakhs at 8% for a tenure of 20 years. By switching his ongoing loan to a lender who offers an interest rate of 6.65%, he can easily save Rs. 2460 per month on his EMI. This translates to a savings of over Rs. 5.90 lakhs in 20 years. 
  • When you transfer a home loan, make sure not to reduce the EMI if you want to complete the loan quicker and save money.
  • With steep drop-in home loan interest rates, it’s a good time to transfer your home loan, especially if you’re paying high-interest rates on your current loan. 
  • Home loan balance transfers are especially beneficial if you have a longer tenure remaining. For example, a customer who has an Rs. 50 lakh home loan can save Rs. 4100 per month on the EMI by switching from 8% interest to 6.65%. This translates to a total savings of Rs. 39.36 lakhs over the loan tenure. 

Final Thoughts 

Though repaying a home loan can be expensive, you can still save money by following the five aforementioned strategies. When it comes to saving money on your home loan, financial commitment is critical. Ensure that you repay EMIs on time. Also, keep in mind that you can always make part-payment on the outstanding loan to reduce the interest outgo. Use the strategies listed here to save money on your home loan repayment. 

 

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