A decade ago, for an individual to buy a house was considered a great achievement. Today, the scenario has changed with the arrival of multiple Housing Finance Companies. Applying for home loans have become much easier with online options which have simplified the application process.
Though the interest rate and repayment amount might make you think twice before opting for a home loan, there are few options using which you can reduce the loan burden considerably. Read on to explore what are the best feasible ways you can find to get cheaper home loans.
Credit Linked Subsidy Scheme (CLSS)
The Indian Government has introduced an interest subsidy scheme in June 2015, under Pradhan Mantri Awas Yojana for purchase, construction, extension and improvement of house for economically weaker sections.
Homebuyers with an annual income between INR 6 lakhs to 18 lakhs can save up to 2.35 lakhs on their home loans. The CLSS has been extended up to March 2019. The buyers can get up to 4% of interest subsidy under this scheme and save a considerable outgo on the monthly EMIs.
How to Claim the Subsidy on the Home Loan?
The eligible applicants can apply to the lender directly and the interest subsidy will be paid at one go to your bank account. It can be applied online or at the branches of the home loan provider. The bank deposits the amount of the net present value in the borrower’s account up front which helps in reducing the loan amount. The applicant should be a first-time home buyer and should not already own a house to avail the interest subsidy scheme.
Home Loan Balance Transfer
RBI has introduced the Marginal Cost of Funds based Lending Rate (MCLR) in April 2016 to replace the base rate. The difference is that MCLR is revised monthly while the base rate is revised quarterly. MCLR was introduced to pass out the maximum benefit to the home buyers, reducing the burden on interest payment.
If an individual had taken a home loan before April 2016 in base rate, he/she can switch to the current MCLR system with the same bank or to some other bank, offering lower interest rate. Transferring from base rate to MCLR within the bank may not cost you much on processing and documentation fees. But transferring your home loan to another bank will incur additional charges which you must calculate and evaluate if the transfer is beneficial.
Choosing Your EMI
The value of the property will remain the same in all the cases. A home loan becomes cheaper when you can reduce the outgo on home loan interest rate. If your home loan tenure is 30 years, you might end up paying more than two times of the loan amount as interest. Hence, choosing a higher EMI will help you cut down on the interest outgo considerably.
You can also reduce your EMI by making prepayment or part-prepayment. Most banks do not charge any penalty on making part-prepayments. Hence as your income rises, you can make part-prepayment to reduce the loan amount and interest payment.
The Last Word
Buying a home is a huge investment and responsibility that requires meticulous plan to choose the right property and lender. Explore every option to make your home loan cheaper.