A home loan is a very important loan. It gives you a house at a young age. Scores of youth in India own a house, thanks to the home loan.
Home Loans are large size loans and this means a lot of money goes in home loan interest. If you want to increase monthly disposable income, make sure that you reduce home loan interest rates from Banks like SBI, Kotak Mahindra Bank, HDFC Bank, Axis Bank and also HFCs like LIC HF, PNB Housing Finance and so on.
Banks offer lower home loan interest rates to new borrowers, rather than existing borrowers. However, there are ways an existing borrower can reduce home loan interest rates.
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1. Switch your home loan: If you want to reduce home loan interest rates, opt for MCLR Regime. Marginal Cost of funds based lending rate also called MCLR, is the minimum interest rate below which banks cannot lend. How does MCLR work? Let’s say you avail a home loan of Rs 30 Lakhs. The bank has a 6-month MCLR of 9.25% + spread of 0.25% as on April 1st 2018. (Spread is charged by banks depending on creditworthiness).
Your home loan interest rate is 9.5%. (This is 9.25% + 0.25%). This is for a period of 6 months. On 1st October 2018, the bank revises the MCLR to 9.2%. The spread is constant at 0.25%. The home loan interest rate gets reduced to 9.45%. Your home loan gets automatically reset on this date. MCLR is great if repo rates are going down. (This is currently happening as repo rate has come down to 5.75%).
See Also: Home Loan Interest Rates Rising
Opt for MCLR as it entails better transmission of home loan rates and a high degree of transparency. Switch your home loan to MCLR. Housing Finance Companies or HFCs don’t come under the purview of MCLR regime. HFCs have higher home loan interest rates, so transfer home loan from HFCs to a bank by paying a conversion fee. This can be around 1% of outstanding home loan principal. If the interest rate differential is more than 1%, then do a home loan balance transfer from HFCs to a bank offering lower home loan interest rates.
2. Home Loan Overdraft Facility: If you have additional money and want to get rid of the home loan fast, opt for home loan overdraft facility with your home loan account. The additional amount you deposit is treated as pre-payment, till it is withdrawn. (If it is withdrawn).
If you deposit an additional amount in the home loan account, the home loan interest payments and home loan tenure reduce.
You can always withdraw the surplus amount deposited, in the home loan account from your bank, whenever required. Make sure you do this only in an emergency, as making withdrawals from home loan account leads to a rise in home loan outstanding balance. This would increase home loan interest payments.
1. Home Loan Prepayment: Never miss an opportunity to make home loan pre-payments on home loan to reduce home loan interest payments. Let’s say you availed a home loan of Rs 30 Lakhs around 5 years ago, with home loan interest rate at 10%. You made a partial prepayment of Rs 2 Lakhs at the end of the 5th year. The home loan tenure reduces from 240 months to 213 months. This is a reduction of 27 months and savings in home loan interest of Rs 5,96,254.
Home Loan borrowers prepay outstanding home loan balance to reduce home loan interest rates. There is no prepayment penalty on floating rate home loans.
2. Compare home loan interest rates: Always check home loan rates, online. If you are an existing home loan borrower, monitor interest rates of lenders and switch home loans if there’s a large gap between what you are paying and market rates. Online portals show home loan interest rates, fees and charges across banks, NBFCs and HFCs. Do your research and lock-on to good deals on home loan.
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