Tips to Reduce your Interest Burden while Repaying Home Loan

Know how to reduce your interest rates burden while repaying home loan

✓ Home Loan from ₹2 Lakhs To ₹15 Cr ✓ Multiple Lending Partners ✓ Interest Rates Starting @ 8.25%

Before availing of a home loan, every borrower should carefully consider the repayment options. An affordable EMI should be preferred over the lowest or highest one. The home loan interest rate plays a vital role in determining the monthly EMI and the total amount paid towards the interest. In such a scenario, you might be worried about ways to reduce the home loan interest rate.

Let us take an example to understand the importance of interest rate before solving the query - how to reduce interest on the home loan?

Suppose you are availing of a home loan of Rs. 30,00,000 for 15 years. Here we will check out the EMI you have to pay and the total amount you will pay towards interest.

Interest Rate

EMI

Interest Amount to Be Paid

Total Amount Payable with Interest

12%

Rs. 36,005

Rs. 34,80,910

Rs. 64,80,910

8%

Rs. 28,670

Rs. 21,60,523

Rs. 51,60,523

You may have noticed the significant changes the interest rate brings in the EMI amount and the total interest amount. For a home loan of Rs. 30 Lakhs, you will have to pay more than double the principal amount as an interest amount over a period of 15 years. Since a huge amount is paid out as EMI, it is certainly a debt burden. A lion’s share of your income will go towards the house loan repayment, and you will be left with a burden for a fair share of your youth. 

So, how can you reduce the interest burden over the years? Here is a list of tips to reduce the home loan interest burden.

How To Reduce Home Loan Interest Rate? 

Given below are the 7 smart tips for home loan interest rate decrease and quick repayment of home loan.

  1. Higher Down Payment: If you are making a higher down payment on home loan, your principal amount will be lower. Through this, you can decrease the total amount paid towards interest considerably as you will be paying interest only for a lower amount. A lower principal amount will result in a lower interest rate and EMI payments.

  2. Home Loan Tenure Reduction: It is true that you will get a lower EMI if you opt for a longer home loan tenure. But, the longer the tenure, the higher is the home loan interest payment over time. If you reduce your home loan tenure, not only the interest outgo will be lesser but also you can repay the loan faster. 

  3. Home Loan Prepayment: You can pay a lump sum amount to prepay a part of the home loan for the outstanding balance. The principal amount reduces with home loan prepayment and in turn the interest burden also decreases. This is one of the best ways for home loan interest rate reduction for existing customers. 

  4. Increase the EMI Amount: If you have a net increase in your income, you can choose to increase the EMI you have to pay. This will help you finish the outstanding sum faster. A small increase in EMI may become the best solution to the query - how to reduce housing loan interest. 

  5. Choose MCLR Rates: As per RBI norms, home loans taken after April 2016 shall follow the home loan MCLR rates or Marginal Cost of Funds based Lending Rate. The borrower will be able to benefit from the changes in the interest rates. You can switch to MCLR if you have taken a home loan before 2016, but this may apply tax and conversion fee.

  6. Use Your Credit Score: If you have a good credit score, you can negotiate with the lender to consider reducing your home loan interest rate. Higher eligibility and a better repayment track record can help you get a better interest rate from the lender.

  7. Transfer Your Home Loan: You can look for a lender who can offer you the same loan at a lower interest rate and transfer your outstanding loan balance to them. This home loan balance transfer facility is beneficial only if you transfer the loan at the initial stages of the repayment period. You may have to pay certain fees for transferring the loan and repayment charges to the existing lender. 

Will Home Loan Refinancing Help Reduce Interest Burden? 

Refinancing the home loan or home loan balance transfer is a good option to consider for reducing the interest burden when you are at the initial stages of the repayment period. As the time passes, you would have already paid a large sum of money toward interest outgo. So, refinancing the home loan would not be beneficial in the later stages.

Lenders will levy loan prepayment fee and other service charges while refinancing home loans. It can amount to a higher figure which results in reduced interest savings. You can use an online home loan EMI calculator to find if refinancing a home loan can help one save interest. 

Check out how refinancing a Rs. 30 lakh home loan for 15 years can reduce interest burden using the example given below.

Lender

Interest Rate

EMI

Amount Paid as Interest

A

12%

Rs. 36,005

Rs. 34,80,910

B

10%

Rs. 32,238

Rs. 28,02,868

To sum up, we can see that Rs. 6,78,042 can be saved as the overall savings on interest over a loan tenure of 15 years.