Tips and Tricks for Reducing Home Loan Obligation

As we get older, we all want to buy a house where we can live peacefully with our families. Buying a home is a time-consuming task because there are numerous factors to consider, such as finances, location, family, property type, and so on. It is common for many of us to look for low-interest housing finance companies and banks or financial institutions when purchasing our dream home. In general, the principal amount for any home loan is assumed to be greater than that of any personal loan or even a car loan, as is the duration and amount of the EMI (equivalent Monthly installments).

Paying off your home loan interest rate EMIs can be a very stressful job; we are constantly looking for ways to reduce our debt and thus our EMI burden. We can experiment with various methods to ensure that our home loan is paid off sooner. Choosing a shorter loan tenure is one way to reduce the burden of home loan amounts. A shorter loan tenure allows the customer to complete their repayment in a shorter period of time while also ensuring a low-interest rate. The only thing that increases with the lengthening of the payout period is the interest rate, not the principal amount.

We should keep in mind that our EMI should never exceed 50% of our income portion; if this is the case, we will be burdened and stressed, and we will have insufficient funds for our regular spending and bills.

It is true that most of us buy a house for a longer period of time because we expect to get good returns on it, which is why we tend to opt for a longer-duration HDFC home loan interest rate as well. However, if we take a loan for a longer period of time, the interest rate will be higher, increasing the cost of the property as well, and the growth that occurred during that long period of time will be neutralized by the interest amount paid during that period of time.

We already know that if the principal amount is repaid quickly, the loan tenure is reduced because interest is always calculated on the outstanding amount. A simple calculation is all that is required: Quick repayment of the principal will result in a lower interest payment. 

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- Reduce your loan's interest rate to ensure a lower interest payout. If you have already obtained a loan from a financial institution, you can refinance it at a lower interest rate.

- The lower the principal amount, the lower the interest rate, so lower the principal amount quickly by faster repayment.

- Try to pay more than your EMI value; the greater the surplus amount, the lower the principal amount, lowering your interest rate burden.

- Try to pay one extra EMI per year, as this is an effective way to reduce the burden of loan tenure and lower the interest rate.

- Conduct a survey and search for lower interest rate offers from financial institutions before finalizing the loan amount and bank. If you have already taken out a loan from a bank, look for banks or financial institutions that offer lower interest rates and refinance your loan from there.

- Think about the fees you'll have to pay to transfer your loan from one bank to another, such as processing fees, legal fees (if any), and so on.

- Make the down payment as large as possible. A larger down payment reduces the amount on which interest is calculated. If the principal amount is lower, the EMI will be lower as well.

- For the time being, if you receive any money from any source, try to use it to pre-pay the loan amount, which will reduce the burden of EMIs as well.

- If your salary increases, try to increase your EMI amount as well, which will benefit you in the long run.

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Let us look at how refinancing can help us reduce our interest burden and save money in the long run:

Assume we have a 25-year home loan of INR 50 lakh. Assuming that the home loan interest rate is reduced from 10% to 9% p.a., the EMI will be reduced from 45,435 INR to 41,960 INR, resulting in a monthly savings of 3,475 INR. If we multiply these savings over the next 25 years, it comes to 3475 INR X 12 MONTHS X 25 years, or 10,42,500 INR. It is a significant sum for any salaried individual or business owner.

At the same time, we would like to caution you not to overburden yourself in order to reduce your loan tenure, even though it is true that the lower the tenure period, the lower the interest amount to be paid, but keep in mind that you will have to pay it for a longer period of time.

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