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Home loan rates have increased as the Reserve Bank of India increased the key rate by 190 basis points. If you think you’re not being given favourable terms from your existing lender, the first step is to approach the existing lender to lower your rate. You can ask the bank to match a competitor’s interest rate, or you could ask them to lower the interest rate based on your credit history. Here, we list out some of the most fool-proof methods to ensure that you pay lower home loan interests and don’t end up burning a hole in your monthly budget. For a given loan amount, the term of payback is inversely related to the amount of EMI.
Bajaj Housing Finance also offers external benchmark linked home loans, such as repo rate linked interest rates. Paying a higher EMI in such a scenario would reduce the amount saved every month. While if someone increases the tenure of the loan, they can save the extra amount and use it for repaying another loan or can invest the same for a return that can balance out the increased interest burden. Home loan interest rates have increased since the RBI raised the repo rates in 2022.
Make a Larger Down Payment
In addition to our day to day expenses, there are certain major expenses or investments which one must make in order to secure their financial future or even bring some comfort in their life. A borrower should only choose a longer tenure if he cannot afford to pay higher EMIs. This is because a longer tenure means that the borrower needs to pay a higher interest rate on his home loan outstanding amount. The remaining 20% has to be paid by the home loan applicant from his pocket. If you have funds available to accommodate more than 20% down payment, make a larger down payment.
However, as time passes this EMI amount will get easier for you to pay, as normally a person's income increases with time as he/she progresses in career. You can negotiate the service terms of the home loan with your existing lender. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. You can approach your existing bank for this shift, and they may allow you to do so after charging a nominal switching fee. The State Bank of India for instance charges Rs 5,000 plus GST for switching regimes. On combining the two, i.e. paying one additional EMI every year, along with increasing the EMI amount by 5 percent every year; the interest burden will reduce significantly.
Have a Look at Your Interest Pricing Regime
Other factors will be the quantum of loan and the amount of down-payment that you have made on the loan. Considering the above point, where the individual has a good standing with their bank, they may be in a position to negotiate with the bank for a lower rate of interest on the loan. Banks may be willing to do so for their existing customers in order to increase brand loyalty and also attract more customers.
If you had taken a fixed rate loan the chances are that you may be paying a much higher interest rate throughout your loan tenure. For instance, 5 years ago, if the floating rate loan was available at 9% interest, fixed rate loans come with interest rates of around 10.5%. And if the borrower opted for a fixed rate loan, he would be at a disadvantage in the current situation.
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Since a part of the total price of the item is borne by the customer, the amount that the customer will have to borrow as loan will also come down. The interest of a loan is calculated based on the principal amount borrowed by the customer. Therefore, the higher the loan amount, the more money you will have to pay as interest and the higher your EMI amount will be.
Government employees will now be given a Rs.50,000 advance to buy computers five times during their entire service tenure. Similar to what was done by the Centre, advances given to judicial service and state government officials for buying cars and motorcycles have now been stopped. FPIs can invest in corporate bonds that have minimum residual maturity of more than 1 year.
Don’t Skip Payments
The lender will send a notice stating that you must clear your dues before a certain date, failing which you could lose possession of your collateral. If you take a home loan of Rs. 30 lakh for 25 years at an interest rate of 6.75%, your EMI would be Rs 20,727. At the end of 25 years, you would be paying Rs 62,18,204 towards the borrowed sum of Rs 30 lakh. The tenure of your loan is one of the primary factors responsible for how much interest you will be paying. While your EMI may come down for longer tenures, you will end up paying more towards interest.
If you get a salary hike or if you consistently see a rise in your income, then you could opt to increase your EMI. This might seem odd at first but the more your EMI is, the shorter is your tenure and so you will see a significant reduction in your interest rate. Most banks and financial institutions finance 75% to 90% of the value of the property, depending upon the borrower’s eligibility. Plan accordingly and ensure that you borrow less so that you can pay lesser interest.
For instance, five years back, if the floating rate Home Loan could be availed of at 9%, fixed-rate Home Loans came with an interest rate of about 10.5%. If the aspiring borrower had opted for a fixed-rate Home Loan, he’d be at a disadvantage given the scenario. While the interest rates on the floating rate have come down to about 8%, borrowers who had availed of the loan on a fixed-rate are still paying a higher interest rate of approximately 10.5%. Opting for a floating-rate loan makes it possible for you to benefit when the interest rate dips.
Let’s understand them collectively and see how different borrowers can reduce their EMIs, and interest rates. Here are some ways how a new or an existing home loan borrower can reduce the EMI burden of their home loan efficiently. If you encounter financial stress and wish to seek relief by lowering your Home Loan EMI, then you might as well consider extending the Home Loan tenor.
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