3 Tips to Avoid High Interest Rate on Home Loans
by Arina Smith Loans & Credit 07 September 2018
High interest on your home loan can cause undue financial stress. There are two ways of looking at this: Say you are nearing the completion of your home loan tenor and owing to market change the interest rate on your home loan increases. In these cases, it is best for you to adjust with the hike. However, if you are taking your first step to purchasing a home or are at the beginning of your home loan repayment, encountering a high home loan interest rate will decrease your financial strength. Faced with such a situation you will have to work your way around the hike to keep the EMIs within your budget.
Here are a few tips that will help you avoid high home loan interest rate.
1. Refinance Your Home Loan :
If you are an existing home loan borrower you can choose to refinance your loan any time during its tenor. Whenever your existing lender increases the home loan interest rate, you can either negotiate and refinance your home loan on better loan terms with them or simply switch lenders to carry out a home loan balance transfer. Normally, banks are more rigid on refinancing terms as their home loan sanctions are guided by the RBI directive and follow the MCLR system. On the other hand, NBFCs approve you loans on PLR rates, so negotiating loan terms with them is easy.
While considering refinance do not forget to check for additional benefits along with the reduced home loan interest rates. You can choose to apply for a Home Loan Balance Transfer with a trusted NBFC like Bajaj Finserv to get access to a low-interest refinancing and additional benefits such as Flexi Hybrid facility so that you can enjoy a principal holiday for up to 4 years, a 3 EMI holiday to help you organize your finances better, a low-interest top-up loan to help you fund additional expenses, and nil foreclosure charges so that you can get debt-free faster.
2. Apply for A Home Loan under PMAY :
If you are a potential homeowner looking to buy property, apply for the home loan under the Pradhan Mantri Awas Yojana. This scheme with a mission to promote affordable ‘housing for all’ offers you subsidies of up to Rs.2.67 lakh on your home loan interest. It is easy to qualify for the scheme and you can apply for PMAY under any of its 3 sub-schemes that are laid out keeping your income and economic status in mind.
In order to apply, you must qualify for either EWS/LIG, MIG I, or MIG II category based on your annual household income and the house carpet area norm for your category. Also as per the terms of eligibility for the Pradhan Mantri Awas Yojana, women and weaker sections of the society are given special preference. You can apply for a home loan with any lender listed with PMAY after enrolling for the scheme appropriate for you and save a hefty amount on the overall interest obligation on your loan.
3. Make Prepayment A Practice :
Say you are more than midway through your home loan and face an interest hike. What you can do is accumulate your extra income, the bonus from your employer, and your savings or investment. Use this extra cash to repay a bigger portion of your loan. This will immediately decrease your principal and reduce your EMIs. However, when you decide to finance a part-prepayment using your savings, be sure that it brings a considerable change to your EMIs.
For example, say you took a home loan of Rs.30 lakh on an interest rate of 9% for 30 years. Initially, your EMIs were Rs.4,023. Now, this home loan has been subjected to a 2% rate hike. Now your EMIs will become Rs.4,762 for the remaining tenor. To counter this, if you decide to make a part-prepayment of Rs.2 lakh on your home loan you will see the negligible impact on your EMIs even though your principal decreases. So, choose prepayment only when it has a bigger impact on your EMIs. You can take help of the home loan repayment calculator to decide better.
Now that you know the tricks to evade a high-interest obligation on your home loan, you can check your eligibility for a low-interest home loan using the home loan eligibility calculator. While you are at it, you can also compute the EMIs on your home loan based on affordable loan terms and a nominal interest rate using the home loan EMI calculator.
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