1. Make Prepayments to Reduce Interest
If you have some spare cash, prepayments can be a good way to make interest payments lower. In the initial stages of a loan, borrowers suffer high interest rates for a set period of time. During the earlier stages, you can significantly cut down your total interest payments by prepaying some of the principal. Floating rate loans offered by most banks and NBFCs which do not have prepayment penalties aid in expeditiously closing the loan.
2. Transfer Your Home Loan to a Lower Interest Rate
Consider moving the balance of your house loan to a new bank if the one you’re currently affiliated with has fees which are higher than acceptable. If this is the case, lower EMIs with a lower overall cost can derive. However, make the switch only after ensuring the savings are impactful as finances, in the form of processing and transfer fees, may be at a loss. Initially, balance transfers work best in the first few years of the loan.
3. Increase Your EMI to Reduce Loan Tenure
If you want to minimize the interest paid on your home loan, reducing the principal balance of the loan by making a higher EMI payment is one of the best options you can follow. If there is a possibility to increase your income, consider raising your EMI payment by five to ten percent each year. The principal amount paid through EMIs along with its corresponding interest can be paid off quickly which results in interest component significantly reducing. Besides, paying one extra EMI in a year, drastically decreases the interest paid and shortens the period of the loan. If the prevailing interest rates drop, then you are better off shortening the loan term and increasing EMIs rather than keeping the EMIs the same and extending the loan period if you want quicker repayments.
4. Negotiate for a Better Interest Rate
Most people are unaware of the fact that they can reduce the interest rate charged on a loan simply by asking the lender. Moneylenders might be willing to give you a better deal if for instance, you are employed and have a steady income, or if you boast of a credit score above 750 alongside a strong history of paying back loans. Since you are an existing customer, you can ask for interest rate revision since a lot of financial institutions offer new customers lower rates. Also, continuously checking the market interest rates and staying in contact with your lender allows you to get a better deal and even lower interest costs.
5. Choose a Shorter Loan Tenure
Even if the loan has lower EMIs, longer tenors will result in higher total interest payment. With shorter periods, like 15 years vs 20 or 25 years, you can ultimately save lakhs in interest. Yes, your EMI will be higher, but you will pay off the loan quicker and save money on interest overall. Use a home loan EMI calculator to find the sweet spot between affordability and savings before making a decision.
Final Thoughts
Reducing interest charged on a house loan requires taking specific actions and smart financial planning. Interest payments can be significantly reduced by shifting your loan to a cheaper rate, making prepayments, increasing EMIs, bettering the loan term, and taking a shorter time. Being vigilant on market changes and regular reviews of the loan terms will help make informed financial choices. Start managing your loan repayment plan today and take an important step towards being financially independent.