If you have taken out a home loan and are wondering how to reduce your interest rate burden, this article can be of big help to you. You will find some valuable tips and strategies to buy your dream house while reducing financial strain. If you are someone who has yet to take out a home loan, remember to use a home loan interest calculator to help structure your loan.

For any type of loan, reducing the interest rate burden is important because interest rates can significantly increase the total amount an individual has to repay. 

Home loans, in particular, have a higher principal amount than a personal or car loan, which can make it taxing to repay. If you do not want to get financially overwhelmed, remember to aim for an EMI payment that is less than 50% of your income. 

So, let’s dive into some of the strategies you can avail of to reduce the interest rate burden of your home loan. 

If You Are Planning to Take a Home Loan

If you are looking for a home loan, you can consider the factors below to acquire a better home loan deal.

1. Compare Various Interest Rates on Offer 

Choosing the right home loan is an important step. You might be able to find loan deals that offer better interest rates than others. So, make sure you choose a lender who is offering the lowest interest rates on your loan. Additionally, if you have a good credit score, you can leverage it to secure lower interest rates and conversion fees.  

2. Prioritise Making a Substantial Down Payment

When signing off on your home loan, it can be extremely beneficial to make a substantial down payment. By paying the highest down payment amount possible, you reduce the overall loan amount, which in turn reduces your loan interest. You can use this strategy to reduce the interest costs you will have to pay in the long run.

3. Select The Loan Tenure Period with Care

The longer the tenure period of your home loan, the higher the interest amount you will have to pay. So, while selecting a longer loan tenure may seem like an attractive option due to the lower EMIs, you may end up acquiring a higher interest burden. 

However, a shorter loan tenure period leads to a higher EMI, which can be debilitating for borrowers. So, you must find the best balance between these two when planning your home loan. Remember to use a home loan interest calculator to understand the type of loan deal you will acquire by testing the various options.  

If You Have Already Secured a Home Loan 

If you have already taken out a home loan, listed below are some strategies you can use to ensure that your interest rate burdens are reduced. 

1. Try for a Home Loan Balance Transfer

It may just be that your current lender is unwilling to adjust the interest rate on your home loan. In such a scenario, you can explore the option of using a loan balance transfer. A loan balance transfer is when a borrower transfers their remaining loan amount to a new lender willing to offer better interest rates and terms. Many lenders offer loan balance transfer opportunities to borrowers, so it is worth looking out for one. It can reduce your overall loan liability significantly.

2. Make A Pre-Payment On Your Home Loan

Borrowers can reduce their overall interest payments by preparing part of the loan before the end of its tenure. However, banks usually impose a prepayment penalty. So, consider the pros and cons of such a prepayment before making your decision. If you feel you are currently paying too much interest on your EMIs, it can be a great option to lower interest costs in the long run.

3. Make Extra EMI Payment

Borrowers are permitted to make an extra EMI payment each year. If you receive an annual bonus or experience an increase in income, you can use the additional funds to finance this extra EMI payment. Making use of this extra EMI payment reduces your loan tenure and the interest cost as well. Re-paying your loan faster reduces the principal amount, lowering interest costs.

4. Increase in Home Loan EMI

If you have recently received an increase in your net income, you can also opt to increase your home loan EMI amount each year. You can increase the EMI amount by a total of 5%. If you employ this strategy in addition to making an extra EMI payment each year, it will help reduce your interest burden.

5. Switch From Fixed Rates to Floating Rates

Fixed rates can be higher than floating rates. So, if you are currently on a fixed-rate loan plan, you can consider switching to a floating rate. Experts usually recommend such a move. It reduces your home loan interest burden by unlocking potential savings. If you have a floating rate interest rate on your loan, you can make additional payments for your loan without incurring any extra costs.

Conclusion

Whether you are planning to take out a home loan or you have already acquired one, there are numerous strategies you can employ to reduce your interest rate burden. Remember to search for the lender who is offering the best terms and conditions on your home loan. Also, selecting the right period on your loan tenure and making a substantial down payment are great ways to reduce your interest rate costs when you take out a loan. Using a home loan interest calculator can be extremely beneficial.

If you have already taken out a loan, remember that repaying the loan as quickly as possible reduces the principal amount, thus lowering your interest rate costs. There are many strategies you can use to repay your loan quickly. Redirecting any bonuses or additional funds you receive towards paying your loan faster is a good way to reduce your interest costs. You can also try opting for loan balance transfer to access lower interest rates to make your home loan expenditure more affordable.

 

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