A long-term financial commitment, home loan is an effective tool for people to fulfill the dream of owning a residential property. However, according to Jayesh Dave, MD of Jayraj Builders Vadodara, it is important to ensure your EMIs are within your budget and do not impact your monthly income. A wise borrower would plan his/her EMIs wisely in order to make the loan more affordable.
In a bid to make their home loan more affordable, most home buyers choose a long term loan that offers lower EMI, but end up paying more interest. We asked the Jayraj Builders MD about how people can effectively cut the cost of their home loan EMIs. Following are the simple tips listed by Jayesh Dave. Let’s take a look:
Choose a short-term loan
It is wise to opt for a short-term for home loans as it ensures a reduced long-term financial commitment. A 10-year loan is always better than a 20-year home loan as it results in a lower interest rate on your total amount. The monthly EMI you pay might be higher, but the interest will be less. A short-term tenure means the principal amount of your loan is paid faster, leading to lower interest rate because interest is calculated on the outstanding principal amount.
Reduce interest rate
You must always choose the lowest interest rate home loan to begin with. As you go ahead, you can refinance your loan if the interest rate is coming down.
Be quick to pay the principal
Make sure that you are paying the principal as quickly as possible. The lesser principal amount means lesser interest to be paid to the bank. Jayesh Dave suggests that if you have extra cash in hand then try to give it to the bank and get your principal amount reduced. Some buyers do this to cut down the EMI interest, making their loan more affordable.
More than one EMI
You can also pay more than one EMI during a particular month. This will reduce your loan tenure and interest cost as well. It will make you pay more but ultimately you will be benefited.
With rise in your salary, you can choose to pay a higher amount of EMI. It is good to reduce your home loan interest burden. You can calculate the interest rate as per your home loan amount, tenure and interest to find out how much amount you are paying less by this step.
Compare interest rates
Banks will not reduce the interest rate to the existing home loan borrowers until they go there and ask them to do it and fill a form for the same. According to Jayraj Builders MD Jayesh Dave, if your existing bank does not reduce the interest rate, you need to find out a bank which is offering you lower interest rate and get your loan refinanced. You must also find out the charges for switching the loan before going ahead with refinancing.
Look before you switch
If you decide on getting your loan transferred to a new lender, check whether or not the lender is offering a lower interest rate. This can result in savings, since banks are barred from levying any foreclosure charges on floating rate loans. However, if your balance repayment tenure is not long, it the switch might not make any significant difference.
While transferring your loan to a new lender, who is offering a lower interest rate, can result in savings, especially because, it also depends on your balance repayment tenure. For a borrower who has recently taken a home loan, the tedious process of making the switch may not be worth the effort.
We hope the above-listed tips by Jayesh Dave would come handy to people with existing home loans, as well as to people who are looking forward to take a home loan.