You can reduce the cost of home loan through various means including seeking shorter loan tenure.
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| Home loan |
When trying to buy a home you need to plan the home loan process properly.
Starting from choosing the right bank to get a loan and getting a favorable interest rate, many aspects are important. Also, try to reduce the cost of home loan.
Apart from the interest rate, various factors influence it. Moreover, especially now that the Reserve Bank has said that the Repo Rate will continue unchanged, there is no chance of an immediate reduction in the interest rate. With this background let's look at ways to reduce the cost of home loan.
Loan period
The loan tenure can range from 10 years to 20 years. It is determined based on various factors like age, income of the borrower. Generally, the shorter the loan term, the higher the monthly installment. The longer the loan tenure, the lower the monthly installments.
Many may prefer to go for a longer term to reduce the monthly installment burden. However, when seeking a longer term option, the total amount of interest payable will also be higher. When compound interest and inflation are factored in over several years, the impact is even greater.
Increase in installments
Also, in the initial period the impact is greater as the deduction is higher than the original. Hence, even if the monthly installment is high, it would be advisable to go for a short-term offer. Plan ahead to deal with the installment burden.
By choosing a shorter term, there is also the option of extending the term later if needed. By making higher installments from the start, you can pay off the loan faster and reduce interest costs.
Those who cannot afford to opt for higher monthly installments can opt for a longer term of 15 to 20 years, but follow the strategy of increasing the installments whenever possible.
Especially young people can increase the installment whenever their income increases. This will help reduce the principal and accordingly the loan tenure and interest. You can try to save the surplus and prepay part of the principal. An amount like annual bonus can be used for this.
Since a home loan is a long-term liability, it is essential to get insurance with it. However, although banks often offer loan insurance, it may be better to seek term protection on your own.
As banks are dealing with selling loans, there are limitations. Insurance cannot be changed if the loan is transferred to another bank. Hence, getting a separate insurance can be convenient and cost-effective. Interest rate calculation features should also be well understood.