In a span of seven months, interest rates on home loans have gone up by 2.25%, increasing the tenure of 20-year home loans to almost 25 years. For those who are not eligible for a longer tenure, the EMIs have gone up by around 18%. While there’s not much you could do to keep your monthly commitments lower, there are some ways to save money on your home loan by exploring the tips below.
Refinancing
Asking your lender for a lower rate is a good first step. If you have built a good credit score over the years, you may be eligible for a better rate. If you have taken a loan from NBFCs, it is possible that your loans are costlier. In that case you could look for refinancing with another lender. However, this comes with processing fees and other additional costs. But the savings on interest could save you more money in the long run.
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Pay higher EMIs
While it may not be easy to increase your EMIs, opting for higher monthly payouts means your loan gets paid off faster, and that could help you save more. For example, if you were to increase your EMI by 5% every year, you can finish your 20 year loan up to 7 years earlier.
Gautam Kalia of Sharekhan by BNP Paribas says, “It’s bonus and incentive season, so people can look to pre-pay or part pre-pay their loan with that money”. He adds that if people look to increase their tenure instead, they may be paying more interest on what they have borrowed.
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Another option is to pay an extra EMI every year, this will also help you save interest cost which can help you repay a 20-year loan in about 17 years.
Pre-close
While this is not a luxury for majority of the borrowers financing their home, for those who are holding onto funds in the bank, the option to pre-close could be worth considering. With stock markets turning volatile the opportunity cost of investing your money may not be attractive as you expected it to be. So, pre-close and save money, time and reduce the stress of hunting for better value.
