Home loans are an easily accessible finance option for individuals looking to fund their desired houses. Financial institutions and housing finance companies (HFCs) extend the benefits of home loans at competitive rates of interest.
The competition in the housing loan industry ensures that customers receive the best deals from lenders. Customers, on the other hand, can explore a few options to reduce their overall repayment towards the home loan further.
Potential home-owners can, therefore, follow certain steps to avail assured reduction in the home loan interest, making room for more savings in the long run.
Tips to reduce interest payment on housing loan
A home loan is a long-term debt that has to be repaid within a fixed tenor. The repayment process involves EMIs- a monthly sum that a customer has to pay during the tenor.
The EMI structure of a housing loan is divided between the principal amount repaid and the interest paid. The principal amount depends on the financial requirements of the customer and the value of the property, among other factors.
The home loan interest payment, however, can be reduced over the loan tenor by keeping the following pointers in mind-
- Increase credit rating
HFCs offer home loans at lower rates of interest to individuals having an impressive CIBIL score. Customers with CIBIL scores of 750 and higher enjoy the benefits of a reduced interest rate.
A healthy credit score implies that the customer has the financial ability to repay the home loan. Individuals with a lower risk of defaulting on the home loan receive lower interest rates from lenders.
- Compare interest rates offered by lenders
Lenders compete among themselves to provide reasonably low home loan interest rates to attract customers. Comparing the loan conditions and respective interest rates enables an individual to choose the ideal home loan.
Once customers have a clear idea about the interest rates prevailing in the market, they can select an HFC that offers the lowest rate of interest on the housing loan.
Individuals can also choose between floating and fixed interest rates. The fixed rate of interest remains constant throughout the tenor of the credit. A floating interest rate is market-linked and therefore changes as per lending rate or other benchmark rate revisions.
- Make higher down-payments
Potential home-owners have to invest a particular amount in down-payment while securing a housing loan. Higher down-payment, ranging between 20-30% of the principal loan amount ensures lower repayment and shorter tenor.
With a decreased tenor, the interest payment along the lifetime of the home loan decreases correspondingly. Customers can opt for higher down-payments to ultimately save money by paying lower home loan interests or limited tenor.
- Choose higher EMIs for home loan repayment
Home loan repayment through higher EMI amounts may be a temporary financial burden for a salaried individual. Increased EMI increases the individual’s debt-to-income ratio.
Higher EMI amounts also mean that the home loan will have a short tenor, thus decreasing the interest payment in the long run. You can use a loan EMI calculator to know how much home loan EMI you can afford.
- Avail income tax benefits on interest
Individuals can avail benefits up to Rs.2 lakh on the interest paid under Section 24(b) of the Income Tax Act, 1961. This home loan interest tax benefit helps an individual reduce the overall interest payment on the housing loan.
Individuals can access several options to reduce home loan interest on housing loans. Doing so will improve your loan repayment experience considerably. Make sure you consider the down payment as well as the other related charges beforehand to apply for the loan successfully.