Smart work, smart processes and smart commitment form the chief fundamentals of the present generation. The hard earned money when it has to be invested in the home, to repay the loan, then it is necessary to follow the smart techniques to Save Interest on Home Loan.
The amount saved can either be used to fix in the bank or for other fruitful purposes like savings for home maintenance. Saving the interest forms a strategic financial arrangement to meet the two needs of repaying the loan faster and repaying it on time. Instead of giving away a large part of the income to clear the loan, refinancing and clearing off the principal amount at the earliest are the better and recommended options. Moreover, these two methods are highly supported by the home loan agencies.
Asserting the compounding effect in its reverse:
The compounding effect is ultimately effectual to yield high returns on investment on being held for an extended time period. For the homebuyers, it is convenient to make a choice for longer tenures, so that it is easier to reduce the monthly outflows. On taking a longer duration home loan causes to reverse the phenomenon. More interest has to be paid in the long run. On the other hand, when the tenure of the shorter home loan is chosen, then it is quicker to repay the principal amount. The absolute servicing cost would be certainly reduced with higher repayment since it is upon the outstanding principal balance that the interest is always calculated. According to the concept of higher repayment and shorter home loan tenure, there are two significant procedures pertaining to the reduction of the interest on the home loan or property loan, namely refinancing and being quick to repay the principal amount
Resorting to Refinancing:
The rate of interest on home loans would be greatly decreased while taking refinancing into account. As a result, the rate of interest and the monthly installments are directly related to each other, as the lower rate of interest reduces the monthly installments. Therefore, the appreciable outcome is that savings incurred is going to be high over a definite time period. But it is possible that the lenders of the home loan agency could levy the prepayment penalties, additional fees, and legal charges, of which the home buyers or the borrowers should be aware, as these are all included while calculating the savings.
Making Prepayments: Prepaying the entire amount of outstanding home loan borrowed or even in parts, favor their future savings. The lenders are discouraged to charge the floating rate home loans prepayment. Thus, it is preferable to assure that the interest cost savings is kept higher in comparison to the prepayment charges to be paid.
Repaying the Principal Faster:
The burden of interest will be lowered when the principal amount borrowed is reduced faster. Paying a part more than their regular EMI or Equated Monthly Installment reduces the principal amount that in turn saves the interest. Following a few essential steps ensures that the savings made is higher
- Extra EMI Payment: For repaying, it is better to make use of the annual bonuses befit the purpose. Moreover cutting down the additional expenses on luxury is even worthwhile so that the money is used to repay the loan.
- Increasing the Annual EMI: On receiving the annual increment to income, a percentage of the additional portion can be used to clear off the loans. A wise process when accepted and executed, then the interests on a home loan is wisely saved.
- Combining both the processes – Making an extra payment as well as paying after increasing the annual EMI: Better is to clear making it making the payment with extra EMI every year at a minimum higher percentage. Buyers or the borrowers shall no doubt love to reduce the interest and save interest, but it has to be done by choosing a smart option which shall not welcome any financial distress. Thus it is much expedient for the loan takers to opt for a payable EMI thereby doing away with the crises in liquidity.
So it can be seen, that abiding by the scheduled and witty means, the loan takers would benefit. The loan can be repaid faster and on time. The amount saved will be helpful to invest in significant other purposes like keeping aside for home maintenance, investing in house renovation or to invest in educational purposes, and also to make a fixed or savings deposits in the bank.