The home interest cost is calculated on a cumulative interest calculation basis. While the interest received on the fixed deposits is based on a simple interest rate basis. Thus the calculation on a cumulative interest rate basis is much higher than on simple interest ones. The interest rates of home loans begin at 6.50% onwards. The same bank may charge interest rates differently to the different loan applicants depending upon the age, credit score & income of an individual. The different lenders also charge different interest rates to the borrowers. The interest rates are decided based on the cumulative interest rates set by the Reserve bank; however, the interest rates still vary according to the lender what they charge to the borrowers. The interest rates can go as high as 18% per annum is charged by some of the lenders, especially the few of the NBFC’s. The bank also charges processing fees to the borrower, which may vary from 0.25%-1% of the loan amount or a maximum of Rs.10,000, whichever is lower. The maximum liability up to which the bank approves the home loans is up to Rs.3 crores.
The loan amount is approved according to the age & salary of the borrower. The higher the age lower is the liability set by the bank, and the higher the salary higher is the loan being approved by the bank. The EMI calculator is a tool available on every bank website to calculate the home loan eligibility and the loan amount, which can be approved by the borrower. The EMI calculator is a very simple to use error-free tool to calculate the EMI applicable to an individual on the home loans. The home loans, if repaid early, the borrower can avail rebate on home loans. The bank approves loans only in case of proper CIBIL score and proper documentation being available with the borrower. In other cases, the borrower can avail of home loans from a few of the NBFC’s or co-operative banks, ready to provide unsecured loans at higher interest rates to the borrowers. Unsecured loans are the ones that are available at higher interest rates even without proper documentation and without a CIBIL score. However, it is recommended that the borrower avails loans from the right lender only who provides loans only after completion of proper formalities and the ones who charge lower interest rates to the borrowers.
Following are the effective ways to reduce the interest costs on home loans
- Do a proper survey on the internet related to the interest rates charged by banks:
The borrower should do a proper survey on the internet related to the bank’s interest rates in case of loans. The interest rates of almost all the major banks are displayed on the finance portal, wherein the borrower can check for the interest rates being charged by the bank and then select the ones who provide loans at a competitive interest rate.
- Maintain proper CIBIL records:
If the borrower maintains the proper CIBIL score, the bank can provide the loans at the lowest possible interest rates to the borrowers. Also, in case of the higher interest rates being charged, the borrower can even negotiate the interest rates with the borrower. Thus having a good CIBIL score is necessary for the loan applicant to get the loan approved.
- Do transfer of loans after having ones to another lender:
The borrower can transfer the existing home loans to another lender in case of the existing loans are charged at higher interest rates. The home loan balance transfer is possible only in case of the borrower has a good credit score and the ones who repay the home loans installments on time. Thus balance transfer can help the borrower save money on the repayment of the loan amount.
- Avail home loans during the festive season:
Sometimes banks charge festive offers on the home loans being approved on the home loans. The borrower can avail of the limited period offer of lower interest rates on the home loans during this period. The home loan offers are launched, especially during the festive period ones.
There are various ways in which the borrower can reduce their liability of higher interest rates. As the home loans are charged on a cumulative interest rates basis, the repayment value is high. Thus, even more, minor changes in interest rates can lead to a major difference in the repayment value of the loans.