Owning a dream home is paramount for many of us, even from an investment point of view it is recommended to get a home loan online and invest in your dream home as soon as you secure your first job. We at mymoneykarma.com will help you with 4 ways to save money on home loan interest so that you don’t end up paying more interest.
An early investment in property (home) is advised by various market gurus and investment planners and they consider it as value for money even if a loan (i.e. home loan) is taken for purpose of investment.
Once we are done with buying the home the biggest question in our mind is “How to save interest on the home loan“.
In this blog, we will share 4 easy ways to save a significant amount of interest on your home loan.
Before moving further let us assume the following details for the loan for the purpose of the blog:
Let’s take an example: Assume you have taken a loan from “Bank X” for INR 25,00,000 payable @ 10% per year with a term of 20 years, then your loan EMI would be INR 24,126 total interest payable – INR 32,90,130. Therefore, you would pay a total payment of INR 57,90,130 (Principal + amount) at end of 20 years.
4 ways to save interest on your home loan:
Take a loan for a shorter term
Every bit helps to save your hard earned penny, if you can afford to get your loan duration shorten even by 3 to 5 years, you are going to save sufficient money on your home loan interest amount.
Here’s the home loan calculator: If you take the loan for 17 years instead of 20 years, you will find a negligible increase in an amount of your monthly instalment which would be now – INR 25,530.26 (approx.), on the other hand, your total interest payable would fall notably to – INR 27,08,173.
You can save an amount of INR 581,957 on your home loan interest by adding a mere amount of INR 1404.26 to your monthly installment.
Use your savings to pay off your loan
If you are able to save bit extra and could pay even 5% of your loan amount i.e. INR 125,000 to cut down amount on your loan, you would be amazed to know that after this you will end up with saving an amount of INR 164,505 on total home loan interest which would be equal to your 7 months (approx.) installment amount.
Even if you are able to save and can afford to pay a lump sum at any time during loan tenure then don’t hesitate from doing so as this small step will make your savings bigger.
Explanation – Considering other factors as same, if INR 125,000 is cut short from original loan amount of INR 2,500,000 then you will end up saving an amount of INR 164,505 on your home loan interest and your EMI will fall by INR 1207 and your new EMI would be INR 22,919.
Increase amount of EMI
For every single penny, you are going to save and use it to pay off your loan, you would be awarded extra amount that would be saved on home loan interest. If you are increasing your monthly installment amount even by 0.5%, you would notice appreciable savings on your home loan interest amount.
Explanation – Taking figures from an original illustration, of EMI – INR 24,126 and if an extra amount of INR 120 (0.5% of 24,126) is paid at every monthly installment, you would be happy to know that with such little increase in the amount you can easily save an amount of INR 61,279.
Switch your loan to another bank
You always have an option to switch from your current lender to another if it is profitable. Market competition has led to various cases where another bank gets ready to issue you a fresh loan comparatively at a lower rate so that you can easily switch your loan with them by paying off your ongoing loan.
Explanation – Another “Bank Y” is ready to grant you a fresh loan @ 9.5% p.a. that can be utilised to pay off your current loan of “Bank Y”. With this option, you will be able to save 0.5% extra on your home loan interest that values INR 351,981 approximately.
All this can take time and require you to stay on top of your finances. This might be difficult if you try and do this manually, however you can stay on top of planning and managing your finances mymoneykarma.com.
We help you understand your financial status and opt for a best possible strategy for decision making with custom solutions for your individual financial needs. Some essays on home loans you may find here.