Choosing the right lender, and subsequently looking out for
ways to reduce the burden of the home loan through lower interest rates, is
crucial.
The most critical factor for most people taking a home loan
is interest rate. And understandably so, because home loan EMIs usually are the
biggest monthly expenditure for a household and it lasts for at least a decade.
Even the smallest of differences in the interest rates offered by various banks
and financial institutions can amount to a significant amount in the long run.
Choosing the right lender, and subsequently looking out for ways to reduce the
burden of the home loan through lower interest rates, is crucial. Here are a few tips that may help you
reducing your home loan interest payout:
Switch to MCLR: Both Reserve Bank of India and home loan
borrowers have long accused banks neglecting existing borrowers while reducing
interest rates. To solve this problem, RBI made the banks to switch over to
Marginal Cost Based Lending Rate (MCLR) ¬– based lending rates from April 1,
2016. Since then, all the new floating rate bank loans have been lent on the
basis of MCLR. Even borrowers of loans disbursed till March 31, 2016 have the
option of either switching to MCLR or continuing with the base rate.
As the repo rate is used in the calculation of MCLR, it is
better placed to reflect the changes in policy rates than the base rate and
BPLR systems. Moreover, banks have been asked to mandatorily review their MCLR
every month and reset your interest rate at a periodic interval of less than a year.
Even your interest rate reset date has to be communicated to you at the time of
your loan disbursal. These features make MCLR system a much more transparent
rate-setting system. The provision of fixed interest rate reset date will also
force banks to pass on the repo-rate reduction to you. Thus, given the current
declining interest rate regime, it makes more sense to switch to MCLR in order
to benefit from future rate cuts.
Reset your loan to lower rate (for NBFC): Currently, home
loan borrowers from NBFCs and housing finance companies do not come under the
purview of MCLR. However, they can reduce their interest rate to current
lending rates by paying a conversion fee. This fee can go up to 1% of the
outstanding principal. Many banks also offer the facility of switching from
higher fixed rate to lower Home
Loan Rates on the payment of a similar conversion fee.
Make prepayments: Home loan borrowers have the option of
prepaying their entire or a part of their outstanding home loan balance.
Currently, lenders are barred from charging prepayment of floating rate homes
loans; however, lenders charge prepayment charges of up to 2% of the
outstanding loan amount on fixed rate home loans. While opting for prepayment,
make sure that the savings in interest cost is higher than the prepayment
charges paid.
Increase your EMI: Your monthly income is considered while
fixing your monthly EMIs. Usually, lenders prefer your EMIs to be within 40% of
your monthly income. You can reduce your overall interest payout by diverting a
part of your increment towards home loan EMIs. In order to reassess your
repayment capacity, banks/NBFCs may ask you to submit your salary slips and
bank statements. However, while opting for increased EMI, do not sacrifice your
long term investment goals.
[Source: http://www.blog.loanmoney.in/five-ways-reduce-home-loan-interest-payout/]
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