Purchasing a home is a dream for many Indians. It’s a costly dream, as one needs a lot of money to achieve it. People often take out a home loan to buy a home. But these loans are of high amounts and for long durations, and the interest rate can also vary from 8.50 per cent to 14.75 per cent. As a result of this, a borrower ends up paying a high amount of interest.
If it’s a floating rate home loan, the lender can increase the rate of interest, forcing you to pay much more than the earlier amount.
There are various ways to avoid paying a high amount on home loans.
Refinancing can be an effective way to reduce your repayment amount. In refinance, you close your existing loan with a higher interest rate and get it sanctioned from a different bank offering a lower rate.
In another scenario, you can refinance your bank loan with a higher monthly payment.
You need to make financial or lifestyle-related adjustments to accommodate the increased installment, but it will reduce your overall repayment amount and will help you close your bank earlier.
One of the effective ways to repay the home loan earlier is to switch from a floating interest rate to a fixed interest rate.
In a floating interest rate loan, the lender can increase the interest rate with a rise in the Reserve Bank of India’s repo rate or for any other reason.
The lender passes on the increased interest rate to the borrower, who either has to pay an increased installment or sees their loan tenure extend to many years.
If your existing home loan is a floating interest one, you can switch to a fixed rate through another lender.
When you embark on your journey to repay a home loan, try not to accumulate further debts and do not default on credit-related payments.
Take one loan at a time and focus your energy on repaying it. Defaulting on payments will invite monetary penalties and make your financial situation worse.
Sometimes people are unable to save enough money to repay their home loan on time.
One effective way to avoid this situation is to put your loan payment in auto mode.
You can set the date for the automatic payment as the date of your salary deposit.
While it will ensure timely repayment of the loan, it will save you from incurring a late payment penalty.
Do not shy away from making additional payments if you have the resources to make them.
You can switch to weekly payments instead of monthly loan payments.
Such practices will help you repay the loan early and save interest on the payment.
You can make such additional payments through windfalls, work bonuses, tax refunds, and a financial gain.
There is no harm in channelling your inheritance or gifts towards repaying your home loan.
An early payment will save you money and relieve the psychological pressure that often comes with the loan.
For many of us, a home loan is a lifetime goal. It’s better to achieve it sooner than later.
A home loan is an effective way to realise it.
One should use all possible means, such as refinancing, setting up auto payments, securing a fixed-rate loan, avoiding accumulating new loans, and making additional payments to the existing loan to repay the loan amount earlier than the actual time.
The money you save will be yours, and you can use it to achieve further financial goals.