While purchasing or building a home, most people rely on low-interest rate home loans from the banks or housing finance companies. The principal amount of a home loan is usually higher than a personal loan or a car loan. Hence, repaying the home loan through EMIs over a fixed period of time is usually taxing for a borrower, and it is more so during this pandemic.

Here is how you can reduce your interest burden while repaying your home loan;

• Try to refinance your loan at a lower interest rate. Experts suggest to ensure a lower interest payout, decrease the interest rate of your home loan. However, if you have already availed the home loan, you can always go ahead and refinance your loan at a lower interest rate, from other banks or housing finance companies.
• Keep a lookout for lower interest rate offers. You should not stop your research of availing the best interest rate loan even after taking a loan. For borrowers who have already taken a home loan keep an eye on banks and housing companies who might be willing to offer a loan at a lower interest rate. Take into consideration the charges for switching the loan.
• Home loans after April 2016 follow the MCLR wherein the borrower benefits from the change in interest rates. However, home loans taken before April 2016 can be switched to the marginal cost of funds based lending rate, keeping in mind tax and conversion fees. Usually, the conversion fee is a per cent of the outstanding loan amount that is yet to be repaid by the borrower.
• Choosing a shorter loan tenure ensures the complete loan repayment faster; and you pay a lower interest cost. Note that higher interest payout does not necessarily mean a higher effective rate of interest. The interest is calculated on the outstanding principal amount, and quick repayment of the principal amount results to lower interest payout. Hence, with a smaller loan tenure, the principal amount is repaid faster.
• Try to make quick repayment of the principal amount. This way the lesser the principal amount, the lesser interest amount you would have to pay.
  Experts suggest if one is capable of then pay more than the regular EMI. The surplus amount that you pay will not only reduce your principal outstanding but also your interest burden.
• You can also pay one more EMI every year, or more than the usual number of EMIs you pay in a year. This is an easy way to reduce your loan tenure, along with the interest cost.
• Industry experts suggest borrowers can try to increase their EMI amount by around 5 per cent every year. This way they will definitely reduce their interest repayment burden.

• Financial Express
• 23/07/2020