Home loan is the biggest financial commitment one makes in one’s life. It is a smart way of converting your dream of buying a home into reality without digging much into your savings. However, when it comes to paying the home loan’s equated monthly instalments (EMIs), it’s not always easy to handle the unanticipated overheads.
We bring you five easy ways to join the ranks of debt-free homeowners and shave months or even years off the life of your mortgage:
1. Rectify and leverage your credit score
A credit score of 700 and upwards is considered suitable for a home loan. With a benefit of a good credit score, one can achieve a smoother home loan application process. The credit report not only plays a pivotal role in sanctioning a loan but also is a major criteria based on which a bank/HFC (housing finance company) decides whether to process a home loan application or not. If your score is good, banks/HFCs will offer a loan at an attractive interest rate. Hence, you can secure financing up to 80 to 90% of the total cost of the property, provided you have an accurate credit report and satisfactory credit score. Persons with lower credit scores are also considered by many lenders at a little higher interest rate.
2. Negotiate with your loan officer
People are unaware that they can use their credit report as a powerful negotiating tool. You can simply speak to your banker or official representative regarding the current rate being offered and ask to either lower the rate or waive the processing fees and negotiate for your benefit.
3. Pre-purchase drill
Avoid applying for a home loan from a bank where you already have your savings account. Research some other lenders who might offer better rates at friendlier terms. Evaluate your options based on their basic deals and value of the rates. In case you already have a home loan running elsewhere, look for offers where other lenders would likely be ready to offer lower rates on loan transfers. Hence, get quotes from multiple lenders before applying for the loan. No penalty is allowed to be charged in pre-closure of individual home loans.
4. Maximise the down payment
The reason for making a high down payment at the first go is to attain a lower rate of interest and reduce the burden of a heavy EMI value. Lenders often ask borrowers to pay off at least 15% to 20% as down payment, but to save money in the long run; it is wise to pay the highest possible value of the loan. Affordability of a large down payment also ensures easier approval of the application and lenders are eager to offer lower interest rates.
5. Make extra payments
Making additional large payments work essentially towards a smoother and faster repayment of the entire mortgage value. You can use your annual bonus to pay a significant amount of the loan and reduce a lot on the interest component. This profoundly affects the principal amount and brings the remaining balance amount on a lower side.
The more cash you pay off, the less money you will need to finance. To save on home loans, managing your investments and cash flow is essential as it will reduce the extra burden of futile funds.
These handy tips may certainly help you to save a substantial percentage of interest on a long-term basis.
(By Deo Shankar Tripathi, MD and CEO, Aadhar Housing Finance Ltd)