Home Loan: Banks will never tell you these 5 'secret' tricks, which save lakhs of rupees on interest..

Home Loan EMI: The Reserve Bank of India (RBI) has recently kept the repo rate stable at 5.5% and, on one hand, has given relief to crores of borrowers that their EMI will not increase, but on the other hand, those who were expecting a reduction in EMI have been slightly disappointed. If you are also one of them and are wondering how the burden of EMI will be reduced now, then do not worry. Today, we are going to tell you some smart and practical ways, by which even without the decision of the RBI, you can reduce the burden of your home loan EMI to a great extent and save lakhs of rupees on interest.

1. Brahmastra of pre-payment: Reduce principal, reduce EMI

This is the most effective and efficient way to reduce EMI. When you take a home loan, in the initial years, a large part of your EMI goes to pay interest, and the principal reduces very slowly. Pre-payment means that apart from your EMI, you pay some lump sum money to the bank. This money is directly reduced from your principal amount.

What is the benefit?
When your principal amount reduces, the future interest charged on it also automatically reduces.

Understand with an example:
Suppose you have taken a home loan of Rs 50 lakh at an interest rate of 8% for 10 years. Your EMI will be around ₹60,664 and you will pay ₹22.79 lakh as interest in 10 years.

The magic of pre-payment:
If you make a pre-payment of Rs 4 lakh each just twice during this period, your EMI can be reduced by ₹10,120 to ₹50,544. This will save you ₹3.46 lakh on total interest!

2. Negotiate with the bank: Take advantage of being a 'good customer'

Do you know that your bank is offering loans to new customers at a lower interest rate than you? If yes, don't sit quietly. Talk to your bank.

Request:
If you have been paying your EMIs on time for many years and your credit score is good, then you are a good customer. Take advantage of this and request that your bank reduce the interest rate.

Refer to other banks:
If another bank is offering you a lower interest rate, then use that offer to negotiate with your existing bank. No bank wants to lose a good customer.

3. 'Step-up' EMI: If salary increases, then increase EMI too
If your salary has increased, you have got a bonus, or you have received a lump sum from somewhere, then use it to increase your EMI instead of spending it like this.

How does it work?:
You can ask your bank to increase your EMI amount a little every year or every two years.

What will be the benefit?:
The increased EMI will reduce your principal amount very fast, due to which your loan will be repaid much earlier.

Savings of lakhs:
In the above example of the loan of Rs 50 lakh, if you make two pre-payments of Rs 4 lakh each and keep the EMI the same, then your 10-year (120 months) loan can be repaid 25 months earlier i.e., in just 95 months! With this, you can save up to Rs 7.70 lakh on interest.

4. Change bank, save money: Home loan balance transfer
If your bank is not reducing the interest rate even after negotiation, then there is no harm in changing the bank.

What is this?: This is called 'Home Loan Balance Transfer'. In this, you transfer your remaining loan to another bank that is offering you a lower interest rate.

5. Switch from fixed to floating (if you get the chance)
If you had taken a loan on a fixed interest rate and now the floating rates in the market have gone down significantly, ask your bank if you can switch.
Fixed rate:
In this, the interest rate remains the same for the entire loan tenure, no matter how low the rates in the market go. It is usually a little expensive.
Floating rate:
This is linked to an external benchmark like the repo rate. When the RBI reduces rates, your interest rate also goes down. Loans with EBLR (External Benchmark Lending Rate) fall in this category.
Floating rate loans are most beneficial when interest rates are falling.

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