As the housing market grows more and more expensive with each passing year, it’s becoming increasingly difficult for everyday people to afford their own home. Thus, most people opt for housing loans to buy their dream house. However, a housing loan is a massive financial responsibility, and it can weigh heavily on your finances if you’re not careful. One of the most significant aspects of a housing loan is the interest rate and accompanying EMIs. In this article, we’ll explore the best ways to reduce your housing loan interest payments while keeping your finances in check.
Calculate Payments with a Housing Loan EMI Calculator
Before we dive into ways of reducing your housing loan interest, it’s important to understand what you’re paying for. The interest rate is the cost of acquiring the loan from a bank or lending institution. Conversely, the equated monthly installment (EMI) is the amount you’ll need to pay back each month for the duration of the loan. It includes both the principal amount (the value of the property) and the interest rate. The sum of your EMIs makes up most of the housing loan interest payments you’ll make over the years, so it’s crucial to choose a scheme that benefits you in the long run.
Calculating this can be difficult and time-consuming for most people, which is why we recommend using a housing loan EMI calculator. A housing loan EMI calculator is an online tool that helps you calculate the monthly installment payments on your housing loan. You can put in values such as the loan amount, interest rate, and tenure to calculate the exact EMI you need to pay.
You can also use the housing loan EMI calculator to test different interest rates, durations, and principal amounts. Doing so will show you how adjusting these values can help you reduce your housing loan interest payments. Once you understand the numbers behind your loan payments, you can begin to take steps towards reducing your housing loan interest.
Refinance Your Housing Loan
If you’re not happy with the interest rate on your current housing loan, you might consider refinancing. Refinancing essentially means taking out another loan to pay off your current one. This might sound counterintuitive, but it’s a smart financial move if you can find a better deal elsewhere.
Several banks and lending institutions provide more competitive rates than others. By refinancing, you have the opportunity to get a better interest rate than your current loan, which will significantly reduce your housing loan interest payments.
For example, let’s say that you have a housing loan with a 10% interest rate, and you refinance with another bank that offers a 7% interest rate. Over the loan’s duration, you’ll end up paying a much lower amount of interest than you initially signed up for. Be sure to analyze the closing costs associated with refinancing before you make a move.
Choose Floating Rate Interest Scheme
Most banks and financial institutions offer two main interest schemes for housing loans. Fixed interest rates are set at a particular rate for the duration of the loan and remain consistent throughout. In contrast, a floating interest rate is subject to market fluctuations, which can increase or decrease the rate over the loan’s duration.
When choosing between fixed and floating interest rates, it’s usually better to choose the latter. Opting for a floating rate scheme means that you’ll take advantage of downward market trends, allowing you to pay a lower interest rate on your housing loan. Consequently, this will lower your housing loan interest payments throughout the loan duration.
However, it’s worth noting that a floating rate interest scheme has its risks as well. Since the interest rate can fluctuate unpredictably, the monthly EMI amount could also change. This can affect your budget and financial planning.
Make a Higher Down Payment
Another way to reduce your housing loan interest payments is to make a higher down payment. A down payment is the percentage of the property’s value that you’ll pay upfront. The rest will be financed by your housing loan.
Most people opt to pay the minimum down payment amount required by lenders. However, the higher the down payment amount, the lower the principal amount you’ll need to finance, which directly impacts your housing loan interest.
Remember, you’re not limited to the lender’s minimum down payment requirements. If you can afford to pay a higher amount, it’s a smart financial move as it can reduce your housing loan interest payments drastically. A higher down payment reduces your interest payments as well as your EMIs, meaning that you’ll own your property faster.
Pay More Than Just The Minimum EMI
In addition to making higher down payments, you can also reduce your housing loan interest payments by paying more than just the minimum EMI every month. The longer the loan duration, the more you end up paying in interest. Therefore, making additional payments towards your principal amount will reduce your loan’s tenure and the total interest paid.
Even if you can’t afford to pay substantial amounts every month, adding even a small extra amount, such as INR 1000-2000, to your regular EMI will make a difference over time.
Make Advanced Payments
Finally, making advanced housing loan payments is another way to reduce your interest payments. Making advanced payments entails making full or partial payments towards your loan principal. These payments are in addition to your regular EMI payments.
Advanced payments are especially useful if you’ve got an annual bonus, tax returns, or extra funds that you can afford to put towards your loan. Advancing payments will reduce the principal amount of your loan, ensuring that future interest payments are lower than initially anticipated.
Conclusion
Reducing your housing loan interest payments can feel like an immense task. However, with smart financial planning, early payments, and a focus on reducing your loan’s principal amount, you can make considerable progress in your home loan interest rate reduction. Make sure to use housing loan EMI calculators to calculate your EMIs and analyze refinancing options, choose floating rates, pay higher down payments and make overpayments to your loan. Reducing your loan tenure, monthly EMI burden, and overall interest payments should be your primary goal when seeking to save money. By following the simple tips mentioned above, you can be assured of saving in the long run.
