A home is a dream buy for most of us since it allows us to pick where we want to live. In India, the structural demand for housing is quite high, and it is only expected to continue to climb. A home loan is the most prevalent option to acquire a property in India, despite the escalating price of owning a home. In the case of a home loan, the borrower takes out a loan from the bank and then repays it over time. Usually with monthly payments similar to those of other types of loans.
With mortgage interest rates at their lowest in a long time, now could be the perfect moment to take advantage of these low rates and finally buy your own house. However, in such a low-interest-rate environment, it has been observed that homebuyers are attracted to go with the first lender they come across. That might not be the greatest option, as there are various factors to consider before locking in a loan and committing to a long-term interest rate.
The interest rate on a loan issued by a financial institution is affected by several factors, including your credit score, income level, down payment amount, and so on. Aside from the interest rate, there are various other elements to consider when comparing the finest lender in the market, including the lender’s reputation, longevity, payback, and other fees.
There are various methods to save money on your home loan journey, even after you’ve done your research and found a lender who you believe matches your interests. However, having a thorough grasp of what a home loan is, the many types of home loans, and the factors to consider when preparing to take out a home loan is an important first step toward saving money.
What is a home loan?
A home loan is a form of loan that is typically used to buy a home. It is frequently one of the most significant debts that a person may incur in their lives. Home loans are a terrific method to save money, but before signing on the dotted line, be sure you understand all of the terms of the loan.
Types of home loan
Fixed-rate and variable-rate home loans are the two most common forms. Variable-rate loans allow mortgage payments to fluctuate somewhat in reaction to interest rate changes, whereas fixed-rate loans give payment and interest rate stability.
Fixed-rate mortgages feature a fixed interest rate that does not alter over the loan’s term. This means that your monthly payments will stay the same over time, but your overall interest will be higher than with variable-rate loans.
Variable-rate mortgages use an index or another agreed-upon formula to determine interest rate adjustments. This means that your payments may increase or decrease over time, depending on how interest rates change throughout this time.
Things to look at before taking a home loan
A home loan is a form of loan used to purchase a home, construct a home, or refinance an existing mortgage.
- Term: Consider the loan’s term and the amount of time you’ll be paying the mortgage.
- Interest Rate: When determining which lender to go with, the interest rate of the loan is always one of the most crucial factors to consider.
- Negotiate: Negotiating with your lender and trying to secure a concession is always a good idea.
How to save money on a home loan?
Obtaining a suitable house loan is essential for financial stability. Understandably, many people are seeking ways to save money on their mortgages. The good news is that you have numerous alternatives for lowering your monthly expenses.
You may save a lot of money on your home loan by doing simple things like checking the interest rates and reviewing all of the terms and conditions.
A solid rule of thumb for cutting costs on a home loan is to get the cheapest loan feasible and pay it off as soon as possible. Because you are making fewer monthly payments on the principal balance than is required with conventional mortgages, you can save money on interest. Here are a few of the most common ways to save money on your mortgage:
Part prepayment is one technique to save money on a house loan. As the name implies, part prepayment entails making partial payments on the due principal in addition to the monthly EMI. Making frequent portion pre-payments throughout the loan term can help you save money on interest. You can always make part pre-payments with annual bonuses, any other unexpected financial windfall, or your other assets.
The biggest advantage of making partial payments is that you will save money on interest in the long run. Always check with your lender to see if there are any fees associated with portion prepayments. If you can afford it, you should pay off your home loan early every month rather than paying off the interest over time. You will be able to reduce your total interest and get out of debt faster this way.
Negotiate with the lender:
When you negotiate with your lender for a lower interest rate on your home loan, you are requesting a lower rate. You might also ask for a postponement of your repayment deadline.
The outcome of the negotiation will be determined by the nature of your relationship with the lender. It’s vital to remember, though, that you’re in a financial relationship with the lender. And the lender knows you’re a good customer, and losing you would be pricey. As a result, if you find a better bargain with another lender, you can always ask for negotiation. If done correctly, negotiation might help you receive a cheaper interest rate and better conditions. You could save more money if you used your negotiation talents effectively.
Choose a balance transfer
A balance transfer usually occurs after a failed discussion. If you still believe you can receive a better interest rate with another lender, you might opt for a home loan balance transfer.
When you get your remaining balance on a home loan moved to a new lender. It’s called a balance transfer of the loan. The remaining payment to your previous lender would be settled by the new lender, and you would be responsible to pay the remaining monthly EMIs to the new lender.
The balance transfer normally comes with a minor processing fee. As a result, before settling on a balance transfer loan, it’s critical to analyze the new lender’s processing fee and other fees.
By choosing a balance transfer loan, you can save money by acquiring a lower interest rate.
Make a huge down payment
One of the clever methods to save money on a house loan is to put down a large down payment. And only borrow the necessary amount. You can utilize all of your available funds to make a large down payment, which can lower your loan’s interest costs. With the use of an example, this can be better described.
For example, a loan of Rs. 60 lakh with a 10.5 percent interest rate will cost you Rs. 83 lakh in interest alone over a 20-year period. If you can reduce your loan demand to Rs. 50 lakh by putting aside over Rs. 10 lakh, you will save Rs. 14 lakh in interest over the course of the 20-year term. As the example above illustrates. It is usually preferable to make a large down payment rather than taking out a second loan.
Do research before taking a loan
This is one of the most underrated procedures in the house loan process that can save you a lot of money. You should conduct an extensive study into the available possibilities as well as analyze the various fees imposed by lenders.
This will give you a better idea of what you’re getting yourself into and what other lenders have to offer. You can always visit individual lender websites as well as third-party portals. That will provide you with additional information in one place.
Increase Monthly EMI
Because a home loan has a longer-term, you can always increase your monthly EMI when your income rises. You can ask your lender to shorten the term of your loan in exchange for a higher EMI. As a result, a higher EMI will lower your home loan’s interest expense.
It is recommended that you examine your EMI amount on an annual basis and, if possible, increase the EMI amount. By increasing your monthly EMI on a regular basis, you can significantly reduce your interest component on a house loan. Keep in mind, however, that an increase in income will result in a rise in expenses. As a result, you’d have to factor in higher living expenses as well. You can check monthly EMI using the home loan EMI calculator.
Avoid additional charges
You should always keep track of your EMI cycle so that you don’t end up paying extra fees. If your EMI is not cleared in a timely manner, you may be charged additional fees. You can always set your EMI to auto-debit and have a sufficient amount to keep your EMI cycle going.
This practice not only helps you keep your EMI under control. But also helps you retain a good credit score. It is a well-known truth that if you do not pay your EMIs on time. The lender is required to disclose your repayment behavior to credit bureaus. Which might result in a bad credit score over time. In addition, an irregular repayment schedule will cost you a lot of money in fees and penalties. Which will raise your overall loan burden.