Lakhs and crores of rupees for a home loan and a big part of our lifetimes to repay it. A home loan binds us while it sets us free. Hypothetically, a 2 BHK / 3 BHK apartment in Bangalore with about 50 lacs to be paid for home loan in about 20 years sets us back by about 20000 rupees a month. It may come down over a period of time should the floating rates come down. However most of us fail to realise there are numerous ways we can save considerable amount of money on the EMI, each and every month.
1.Fixed vs Floating Rate of Interest
By choosing a fixed rate of interest for your apartment you will pay the exact same percent of interest in the entire tenurity of your loan. The equatable monthly installments will not change. However, the Floating rate of interest, the more popular of the two, offers the flexibility of adjusting the EMI as per market dynamics.
Point to note:
1.Fixed rate interest charges are generally 1- 2.5 percent higher than floating rate charges.
2. On October 5 RBI reduced the REPO rate from 6.5% to 6.2%. REPO rate is the rate at which banks borrow money from RBI.
3. MCLR – Marginal Cost of Funds based Lending Rate introduced by RBI in April 2016 to ensure lower interest rates with quicker disbursements, consistently.
4. After the historic Demonitisation move by Narendra Modi on November 8, all banks with massive cash inflow are encouraged to offer loans at discounted interest rates.
2.A good CIBIL score, Please
Banks actually want us to prosper, the society to prosper and the nation to flourish, they like that idea. But they hate the defaulters, we all do. CIBIL score is a numeric synopsis of your credit history. It ranges between 300 and 900.
Point to note :
1. About 81% of the loans that are approved in India have a CIBIL score of over 750.
Basically, if you have always repaid all loans and credit card bills on time, you are great!
2. CIBIL score of about 850 gives you the impetus to demand a lower interest rates on your home loan.
We all know how much of a difference even a 0.5% difference in interest can make.
3. Foreclosure – Prepayment or Part Payment
Most people have this doubt – If I get approved for a loan and then am able to pay off a certain sum or the full loan itself, will i have to pay interest also? Absolutely not. Infact RBI has made it more feasible. Banks until May 2014 were charging a processing fee for such foreclosure. The Reserve Bank of India in May 2014 made it clear that banks are prohibited from charging such fees.
Points to note:
1. Any surplus amount you have, you can pay off in full or part and enjoy a lower EMI or no EMI.
2. You can invest such surplus amount into investments with guaranteed returns and look for a more opportune time to pay off
Which ever way you opt, you are not only getting the monkey off your back but also its bite marks, yeah.
4.Consider Switching Banks
Remember when you went shopping in the local mall and the shopkeeper gave you a fairer deal because you suggested you might buy from the next store? It’s almost the same with banks. Compare interest rates and seek a better deal from your banker. However it is to be noted that a 0.50% to 1.75% of the outstanding loan amount will be charged as conversion fees.
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