How to decrease your interest payments on a current home loan?
A lot of times, monetary constraints cause people to give up on their dream of building/buying an ideal housing stay. Even renovating a home or getting a home extension requires a significant amount of capital that the individual might not have in their savings account.
In such times, home loans provide an ornamental and instant solution to quenching your financial needs and helping you to acquire your dream house. The popularity of housing loans can be gauged from the fact that the value of mortgage loans would be worth Rs 46.1 lakh crore by FY 2024.
What are home loans?
As the name suggests, a home loan or housing loan refers to the sum borrowed from a banking or non-banking financial institution by a borrower to deal with their monetary needs concerning housing. The borrowed capital sanctioned from applying for a home loan can be used to buy a house, flat, or plot of land. It can also be used for home construction, extensions, renovations, repairs, etc. as per the requirement of the borrower.
Home loans are secured loans and hence call for pledging the property of the borrower as collateral against the loan amount as security. The property can be fortified by the lender in case the borrower fails to repay the disbursed amount in time.
Mitigating interest payments on the current home loan
A lot of people are found to be curious about finding a way to cut down on interest payments on their existing housing loan plan. There are a few ways to save some money on interest payments on housing loans.
-> Search for the marginal cost of funds based lending rate
The marginal cost of funds based lending rate (MCLR) has been implemented by the Reserve Bank of India, taking over the previously used base rate system to determine the lending rates of the lender. The MCLR regime offers the borrowers an option to refinance their loan. In case they find a lender offering a lower rate of interest on a housing loan, the borrower can easily refinance their housing loan. This can help the borrower to save a significant amount of capital on interest payments.
-> Negotiating the terms and conditions
If you have a good relationship with the lender and well-maintained financial history with the financial institution, there is some scope for negotiating the terms and conditions of the housing loan scheme. Doing so might make the lender reduce the rate of interest on your housing loan, letting you save some of your money on interest payments for your home loan.
-> Early payoffs
It may happen that in between the housing loan tenure, you acquire some extra money in your hand, maybe because of a rise in the salary or a lump sum bonus or monetary gains from other sources. You can use this surplus capital to prepay the loan before the loan tenure ends. This will decrease the net outstanding loan amount to be repaid, mitigating the interest payments. Moreover, doing so can help you either lower your equated monthly instalments or the overall housing loan tenure, allowing you to save some money on paying the interests.
Hence, deploying these few simple strategies can help you optimize your savings by decreasing the interest payments on your current home loan.