How to reduce home loan interest payments and tenure; 2 ways
New Delhi: There has been a considerable surge in the home loans and credit facilities availed for purchasing a house with the rising number of nuclear families, increasing earnings capacity and multiple relocations due to job changes, etc. In case a family has taken a home loan for purchasing a house but now the family is shifting to another city due to job relocation of the main earner. In this situation, the person might be willing to square off the loan amount as soon as possible so that a new credit facility can be availed to buy a new house in another city.
There are several ways by which the home loan tenure and the quantum of interest payments can be diminished. The choice for opting a particular option completely depends upon the respective requirements, the quantum of home loan, home loan repayment tenure left, etc. Conventionally, the quantum of home loan is large due to which the total repayment amount, principal plus interest payment, becomes huge.
Home loan balance transfer
A home loan balance transfer is the most typical way to reduce the interest payment and the loan repayment tenure. A large number of scheduled commercial banks provide the facility of a home loan balance transfer. The key benefit of a home loan balance transfer is the interest rate differential. If the interest rate of a home loan scheme of a particular bank is lower than the interest rate of the existing bank, then it is advisable to transfer the home loan balance.
However, the new bank will charge a home loan balance transfer fee along with some other transactional charges. Before opting for a home loan balance transfer, a person should thoroughly go through the terms and conditions levied by the bank on the home loan balance transfer scheme.
Prepayment of home loan
Partial prepayment is another way to shrink the home loan interest payment and the home loan duration. A few banks offer the facility of prepayment of home loan and other credit facilities such as vehicle loan, personal loan or gold loan. Though, the bank levies a slew of charges on the prepayment of a home loan amount. The fee is charged in order to offset the asset-liability mismatch incurred due to the prepayment and defaults on several credit facilities.
The prepayment of a home loan amount can be done with the help of an annual bonus or semi-annual raise in compensation or a large-quantum one-time gain on retirement or from the sale of ancestral property. In this case, an individual should choose the most profitable option between prepayment of home loan and repayment of a home loan amount as per the mutually agreed terms with the financial entity. Prepayment of home loan is beneficial if the charges incurred in the prepayment process are less than the total interest payment left.