Home loan guide: 5 tips to save upto Rs 37.5 lakh on Rs 50 lakh home loan | Interest rate, down payment, loan tenure, PMAY guide

Home loan calculator: For many people in India, owning a home is a major goal in life. But several factors like skyrocketing real estate prices, inflation, unforeseen expenses or high-interest rates can make the burden of a home loan seem overwhelming. By following simple steps like higher down payment, change in loan tenure, refinancing or prepaying the loan one can reduce the home loan burden significantly and become debt-free sooner.

Here are five ways in which one can reduce their home loan burden — 

Home loan calculator: Opt for a higher down payment

While it may be tempting to pay the minimum down payment required to purchase a home, a higher down payment can significantly lower the loan burden. By paying a larger down payment, one can reduce the principal amount of the loan, which will lower the monthly EMIs and the interest paid over the life of the loan. Additionally, a higher down payment can help negotiate a lower interest rate with the lender.

Home loan EMI calculator: Change loan tenure

While a longer loan tenure may seem like an attractive option if one wishes to lower their monthly EMIs, but it will ultimately result in paying more interest over the life of the loan. On the other hand, opting for a shorter loan tenure will increase monthly EMIs, but it will reduce the overall interest paid over the life of the loan. Opting for a shorter loan tenure makes more sense as it can help the borrower become debt-free sooner.

Home loan interest rate: Refinance the loan

Refinancing involves transferring the home loan to a lender offering lower interest rates and better terms and conditions. By doing so, the borrower can reduce the interest paid over the life of the loan and lower their monthly EMIs.

Home loan eligiblity calculator: Avail government schemes

The Government of India offers several schemes like the Pradhan Mantri Awas Yojana (PMAY) which offers interest subsidies for first-time homebuyers. Additionally, the Credit Linked Subsidy Scheme (CLSS) under this Yojana provides low home loan interest rates for upto Rs 6 lakh for lower income group and Economically Weaker section. And those in Middle Income Group can get subsidy in interest rates under this scheme.

Home loan tax benefit: Prepay the loan

Prepaying or making additional payments towards the principal amount of the loan can help reduce the interest paid over the life of the loan and reduce the loan tenure.

Let’s understand this better with an example. 

For Loan Amount of Rs 50 lakh,
At an Interest rate of 9.5%,
For a tenure of 20 years,
The EMI comes upto Rs 46,607.

But if one waits to pay the same fixed EMI 240 times, then on the Rs 50 lakh principal amount they’ll end up paying an Interest of Rs 61,85,574. 
And make total payments of Rs 1,11,85,574. 

Prepaying 5 per cent per annum: On the other hand if one keep prepaying 5% of the EMI, or Rs 2.5 lakh over and above the EMIs, then they’ll make prepayments of Rs 23,05,090.

And pay a principal amount of Rs 26,94,910, alongwith interest  of Rs 24,31,811.

Paying in total an amount of Rs 74,31,811 in 110 Equated Monthly Installments over a course of only 9 years and 2 months to finish off the loan.

And make a saving of Rs 37,53,763 in the process.

Prepaying 1 EMI per annum:  

Even if one makes just one extra EMI payment of Rs 46,607 per year, then then they’ll make prepayments of Rs 7,45,712.

And pay a principal amount of Rs  42,54,288, alongwith interest of Rs 47,48,481.

Paying in total an amount of Rs 97,48,481 in 194 Monthly Installments over a course of 16 years and 2 months.

Even then they’ll save Rs 14,37,093

So be it a financial crunch or due to shortage of budget, a borrower or potential loan borrower can follow these tips to reduce their home loan EMIs, tenure and save on the interest paid.

(Disclaimer: Consult with a financial advisor before making any decisions about your home loan.)