Home loans are, without a doubt, the most significant financial commitments that borrowers will ever make in their lifetimes. This is due to the fact that home loans involve not only a very large amount of money but also very long payback periods, which typically range from 15 to 30 years. The monthly interest payments (EMIs) on a mortgage effect monthly spending to a significant degree and represent a significant duty and obligation that must be met. Therefore, people who need to borrow money for a house are always looking for ways to lighten their overall financial load.
Here are some pointers to help you successfully manage the repayment of your house loan and cut down on the amount of interest you have to pay.
Choose a balance transfer—By choosing this option, you can transfer the whole balance of your home loan to a different lender who offers better terms and conditions and a cheaper interest rate. When your current lender rejects your request to modify the terms of your loan or lower the interest rate, you may choose this alternative.
Existing HFC and NBFC borrowers can choose this option to transfer their loans to banks and take advantage of PNB MCLR Rate -based pricing.
Current house loan customers have the option to move from the old base rate or BOB MCLR rate to these regimes after the RBI mandated banks to provide new home loans (of floating rate) by tying them to an external benchmark. It is important to ask your current home loan provider about your house loan eligibility in order to learn more. Don’t forget to ask not only about the method and possibility of switching but also about any associated fees.
Set your loan’s interest rate to a lower level (for NBFCs and HFCs)
NBFCs and HFCs do not participate in the RBI’s BOB MCLR system and instead base their lending decisions on PLR (Prime lending rate). However, by paying a conversion fee, which is a modest fraction of the outstanding loan balances, the existing borrowers of these can lower their interest payout by resetting the rate on their house loans. It differs across different banks and lenders. Only choose this option if, after accounting for the conversion-related fees, the amount you would save by refinancing your home loan is much more than the amount you would save by doing so.
Prepay in full or in part – Borrowers have the option to prepay all or a portion of their existing house loan balance anytime they have extra cash on hand, as a result of bonuses, the maturity of an investment plan, etc. Although in accordance with RBI regulation, lenders cannot charge you for prepaying in the case of fluctuating interest rates, they may do so in the case of fixed home loan rates by adding a set percentage. Make sure the prepayment fees aren’t excessive before prepaying.
Make sure the prepayment choice won’t have an impact on your emergency savings, long-term financial objectives, or home loan eligibility. You can redeem your current investments, such as fixed deposits, to pay off your mortgage early if their returns are unrelated to any specific objectives. Additionally, avoid using payments set aside for certain long-term objectives to pay off your debts early.
If you are still using the previous base rate, switch to PNB MCLR Rate.
– The Reserve Bank of India (RBI) introduced the idea of MCLR (Marginal Cost Based Lending Rate)-based lending rates on April 1, 2016, in response to repeated complaints from borrowers and the Reserve Bank of India (RBI) accusing banks and other lenders of ignoring existing borrowers while reducing interest rates. Even though all newly issued bank loans are based on BOB MCLR rates, borrowers of loans disbursed up until March 31, 2016, have the choice of either sticking with the base rate or switching to MCLR with a small switching fee, if applicable.
As the repo rate is also factored into the PNB MCLR Rate calculation, it more openly and effectively reflects changes in policy rates than the base rate and BPLR approach. In contrast to other rate schemes, MCLR enables borrowers to benefit from rate reductions made by the RBI.
Accordingly, if the eventual interest rate given is lower and the extra costs of transfer do not offset the benefits you receive from moving to MCLR, switching your home loan to PNB MCLR Rate or BOB MCLR is a viable alternative.
Take advantage of the tax benefits. The Income Tax Act offers dual tax savings on principle and interest components of home loans, which is a relief to the borrowers. Borrowers may deduct up to Rs. 2 lakhs of interest payments under Section 24 and up to Rs. 1.5 lakhs of the principal amount of a house loan under Section 80C. However, this deduction is only permitted once the entire house has been built.
If the borrower transfers the home before the five-year window from the date of taking ownership expires, no deduction or tax benefit will be permitted under Section 80C.
The combined claim cannot exceed the total principal repaid during the year in the case of joint home loans where the co-borrower is also the co-owner of the property. In these cases, both parties may claim separate deductions for interest and principal paid during the year based on their respective property rights or shares in the home.
Pay greater EMIs: Even if their EMIs are manageable to be serviced in accordance with their home loan eligibility for a shorter tenure, many borrowers choose higher loan tenures to minimise the size of their monthly EMIs. However, this has the opposite effect of what it is intended to do in the case of loans when longer loan terms result in higher interest payments. Ideally, your monthly income should not be used to pay more than 40% of your mortgage.
However, you should endeavour to pay higher EMIs in accordance with your home loan eligibility whenever possible in addition to the regular EMI amount so that your interest payment will be reduced as a result of the additional amount paid, resulting in a reduction in the amount of outstanding principal. Your loan will be paid off sooner and with less interest, if you increase your EMI payment by a set percentage each year.
