Buying a house is the dream of many Indians. It is an expensive dream because it takes a lot of money to achieve it. People often apply for a home loan to make this dream come true. But these loans are for large amounts and long duration, and the interest rate can also vary from 8.50 percent to 14.75 percent. As a result of this, the borrower ends up paying a high amount of interest.
If it is a floating rate mortgage loan, the lender can increase the interest rate, forcing you to pay much more than the previous amount.
There are several ways to avoid paying a high amount for home loans.
Refinancing can be an effective way to reduce your repayment amount. In refinancing, you close your existing loan with a higher interest rate and get approved by a different bank that offers a lower rate.
In another scenario, you can refinance your bank loan with a higher monthly payment.
You may have to make financial or lifestyle adjustments to accommodate the increased payment, but this will reduce your total payment amount and help you close on your mortgage sooner.
One of the effective ways to pay off your home loan sooner is to switch from a floating interest rate to a fixed interest rate.
In a floating rate loan, the lender can increase the interest rate with an increase in the Reserve Bank of India’s repo rate or for any other reason.
The lender passes the increased interest rate on to the borrower, who either has to pay a larger payment or sees the life of the loan extended for many years.
If your current home loan is floating rate, you can switch to a fixed rate through another lender.
As you embark on your journey to repay a home loan, try not to accumulate more debt and don’t default on credit-related payments.
Take one loan at a time and focus your energy on paying it off. Failure to make payments will result in monetary penalties and worsen your financial situation.
Sometimes people cannot save enough money to pay their home loan on time.
An effective way to avoid this situation is to put your loan payment on automatic mode.
You can set the date for automatic payment as the date of your payroll deposit.
While it will ensure timely loan repayment, it will prevent you from incurring a late payment penalty.
Don’t hesitate to make additional payments to pay off your home loan if you have the resources to make them.
You can switch to weekly payments instead of monthly loan payments.
These practices will help you repay the loan early and save interest on the payment.
You can make such additional payments through windfalls, work bonuses, tax refunds, and financial gains.
There is nothing wrong with channeling your inheritance or gifts toward paying off your home loan.
An early payment will save you money and relieve the psychological pressure that often comes with borrowing.
For many of us, a home loan is a lifelong goal. It is better to achieve it sooner rather than later.
A mortgage loan is an efficient way to do this.
All possible means should be used, such as refinancing, setting up car payments, obtaining a fixed rate loan, avoiding accruing new loans, and making additional payments on the existing loan to repay the loan amount before the agreed upon duration.
The money you save will be yours to use to achieve other financial goals.