Top 7 Smart Ways to Reduce your Interest Rate Burden While Repaying the Home Loan

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23 JUNE, 2021

A home loan interest rate plays an instrumental role in helping you select the right lender and deciding the EMI. With the availability of maximum repayment tenure of 20 years, you can end up paying significantly more than the principal loan amount. To ensure that you pay the minimum amount possible, you can make use of some important tips for faster home loan repayment.

Below are 7 ways to complete your home loan quickly and decrease the repayment burden:

Make a Higher Down Payment

Choosing to pay a higher down payment helps you reduce the EMI outgo towards interest significantly. This is because it brings down your home loan principal amount, in turn reducing the overall interest payments. Thus, opting for a high down payment can go a long way in lessening your repayment burden.

Increase Your Home Loan EMI

A swifter home loan repayment brings great relief to borrowers from the long-term loan commitment. One way of finishing the outstanding sum faster is by increasing your monthly EMI. After taking stock of your current financial condition, you can dedicate a higher amount that doesn’t hinder your personal expenses. Hence, an increased EMI will ensure quicker home loan repayment.

Choose Home Loan Prepayment

In home loan prepayment, you pay a lump sum amount to reduce the outstanding loan. At the beginning of the loan tenure, as a larger portion of the EMI goes towards the interest payments, the outstanding amount reduces at a slow pace. But with prepayment, the principal reduces and thus, the interest burden also decreases. You can simply dedicate any bonuses or personal savings to make a prepayment.

Shorten Your Home Loan Tenure

By increasing the home loan tenure, you get lower EMIs and some breather to manage your cash flow. But, the longer the tenure, the higher is the home loan interest payment over time. On reducing the tenure of your loan, the outstanding will be paid off quicker along with lower interest outgo. You can make use of an EMI calculator to understand the role of loan tenure in deciding how much interest you shall pay.

Opt for MCLR Rates

Home loans taken after April 2016 shall follow the MCLR or Marginal Cost of Funds based Lending Rate as per RBI. In case you have taken a home loan before April 2016, you can choose to opt for the MCLR rate to benefit from the change in the rate of interest. But switching to MCLR attracts conversion fees and tax. Therefore, you can estimate if such a switch shall benefit you financially and then, take a decision.

Negotiate for a better interest rate

Often lenders are open for negotiation if you are have a good credit score. You can ask the lender to consider reducing the interest rate on your home loan. A lower interest rate will reduce the overall loan burden. High eligibility and good repayment track record can help you negotiate with the lender better.

Transfer Your Home Loan

In case your home loan interest rate is higher than what other lenders are offering, you can opt for loan transfer. You can choose to transfer the home loan in the initial years, as the interest payments are higher during that period.

With these tips, you can now repay your home loan without financial trouble and fulfil the long-term commitment faster.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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