By Munir Kulavoor | Published on 05 Aug 2016 | IntegraFinServe.in

Interest rates are likely to fall in the short term, even if the RBI leave the offical rate on hold there are many ways to cut your home loan debt. Here’s few ways to do it.

1. CHOOSE THE RIGHT LOAN

• Many customers focus too much on the interest rate and fail to examine the fees and charges associated with the home loan.
• Choosing the right home loan is the first step any borrower should take before signing the dotted line.
• Lot of home loans from many HFCs & Banks might look cheap but they have high application fees or a honeymoon rate (for e.g. 1-2-3 year fixed rate) post which they might switch to a more expensive rate.
• Comparing all the fees and charges associated with a loan including post disbursement (for e.g. fees for reset of interest rate or EMI) will give you truer cost of what you will really pay as it is a long term debt.

2. TIP THE LOAN

• When you first avail a home loan it will feel like you’re not making any headway into it but, if you do the maths, paying more early on will help you save.
• Start by cutting back on those coffees, unnecessary lunches and takeaway meals and tip an extra Rs.2000 a week into your loan.
• If you calculate, on a Rs.50,00,000 30-year loan with a rate of 9.40 per cent, this Rs.8000 (tip) will save you more than 50,00,000 in interest repayments and shave thirteen years and six months off your loan’s duration.

3. HIGH FREQUENCY

• Often the lender will put you onto monthly repayments but this is simple to change, all it requires is a change in ECS
• Making more frequent for e.g. fortnightly home loan repayments will help you pay off the debt faster.
• Halving your monthly repayment and paying it fortnightly is a neat trick that can save considerable interest over the life of the loan.
• There are 26 fortnights in a year which means you will be make the equivalent of an extra month’s repayments than when you make 12 monthly repayments.

4. OFFSET/OVERDRAFT

• Overdraft accounts (for e.g. Smart Home/Home Saver/ Maxgain) OR a daily transaction account linked to a home loan are a great way to reduce your overall interest and many customers opt to balance transfer to Banks that offer these products.
• You can get your rental income (from investment properties), dividend (linked to Demat Account) paid into this account, and it offsets the interest repayments and you are paying down more principal.
• SBI customers for instance like putting all their savings in Max Gain account to reduce the interest costs.
• In the above example Rs.50,00,00,000 loan, if you have a windfall Rs.10,00,000 in say a Max Gain account you will only pay interest on Rs.40,00,000 thereby shaving off 183 or 51% of EMIs off the 30years loan.