How to Clear Loans Quickly | How to Save 30 Lakhs on Home Loan Purchasing a home remains a reality for most people’s especially that of the middle class. However, attaining the dream of home-ownership is not easy as a potential owner has to pass through the weaving of several loans and interest rates which can as well become a web that catches the owner. This guide could be of great help in clearing your home loans in the shortest time possible; enough to save up to thirty lakhs. Here, let’s calculate the basic characteristics of home loans: Some pitfalls and benefits of home loans that everyone should know about.
1. The Middle-Class Loan Trap
The middle-class loan trap can be described as people and families who get stuck in the middle of affordably owning a house thus they are trapped in a cycle of high interest loans for long tenures. This trap in particular results in substantial costs, which lowers an individual’s capacity to budget for, or invest in, other spheres. The way out of this trap is to appreciate the conditions of the loan and actively look for better offers.
Middle class families are the most at risk since they are unable to provide for their families as well as the rich and might lack the know-how on what is good for an investment as the rich do. Therefore, they might be inclined to incur loans with unfavorable terms and colossal interest rates on top, which put them on the spot when it comes to repaying the principal amount within a brief period.
2. 90% Don’t Know This
Perhaps one of the shocking facts revealed by the survey is the fact that borrowers are very unfamiliar with the numerous possibilities that are open to them on how to deal with and minimize the load of their loans. This often results to high cost implications in the period of the loan as the client lacks awareness of the situation at hand.
For instance, such people do not know of loan refinancing, which is when one replaces a loan with another one that has a lower interest package. Most members are not aware of provisions such as tax deductions that are available on the interest that one has to pay on a home loan and this brings down the overall interest rate. Awareness of these choices can make a significant difference of a financial plan.
3. Availing a Home Loan at a Lower Rate of Interest
Of all the things that a home buyer will need to do to ensure they can pay off their home loan amply, getting a low-interest home loan is perhaps the most important. Here are some strategies to help you get the best deal:Here are some strategies to help you get the best deal:
- Improve Your Credit Score: This influenced by the fact that a higher credit score will lower the interest rate offer by the credit lending institutions. Always conduct yourself creditably and keep your credit record clean by paying your debts on time and limiting your credit card usage.
- Shop Around: To borrow a loan, do not accept the first loan offer given to you. Select multiple rates from multiple banks/ financial institutions. One should use the internet and other comparing sites to get the best and the most preferred rates.
- Negotiate: It will not be wrong to expect your lender to offer a flexible deal or lower the interest rate they have set for you. Often, a short discussion can lead to the desire of the lenders to decrease the interest as well as the applicable fees.
- Fixed vs. Floating Rates: One should learn the differences between fixed and floating interest rates. While with fixed rates, the interest rates will not vary throughout the processing of the loan, floating rates can change. In the ability depending on the particular conditions of the given market and putting an emphasis on your financial potential, opt for the variant that seems most appropriate to you.
4. EMI Vs Tenure Jim -What to Cut or to Spend Less on?
Some of the choices debtors fight when borrowing money comprise of whether to bring down the EMI or the loan period. Here’s a look at both options:Here’s a look at both options:
- Reducing EMI: If the EMIs are lower, your cash flow is not as strained but this comes at the disadvantage of a longer loan period. This implies that they are going to pay a higher amount of interest throughout the period of the loan.
- Reducing Tenure: Prepaying the loan implies that you will pay a higher EMI, but you will be paying lesser interest in the long run. This is advantageous in a situation whereby the borrowed amount gives the person the capability to afford higher monthly payments.
Just as a thumb rule, it would be wise to go for tenure reduction rather than EMI if one can afford it. For this reason, application of this strategy will go a long way in ensuring that you incur low prices in terms of interest payments.
5. Strategy to Save Lakhs
Thus, it is to be understood that if a strategic outlook to loan repayments is adopted, one can save lakhs of money over the duration of a loan. Here are some tips
Make Prepayments: It will be advisable to make early payments to the loan once you have some amount of money lying around. This will reduct the initial sum, which in turn will decrease the interest as well. On the principal, the present dismissals will diminish the principal sum and therefore the interest.
Bi-Weekly Payments: Rather than the usual monthly payment option, you could try to pay bi weekly. This leads to an extra month’s payment per year which in return, is used to pay off the principal balance at a faster rate.
Round-Up Payments: Assume that the payments are in thousands so round up your payments to the nearest thousand. For instance if the EMI required is Rs. 18,500 then they should pay Rs. 19,000. This causes a small increment that can greatly affect the overall sum of principal in the long run.
Windfall Gains: To pay your loan consider applying the windfall gains this includes bonuses, tax refunds, and inheritances. This amount can significantly decrease your loan name and additionally the interest charges.
6. Loan Clear vs. Investment
The other major decision borrowers are torn between is whether to service the loan or invest the balances. Here’s how to approach this decision Here’s how to approach this decision:
Compare Interest Rates: Also, if your home loan interest rate is more than the returns you are getting from investments, it would be wiser to pay off the loan. On the contrary, should the outcome of the investments provide a better return then, retain them.
Risk Tolerance: It looks at the level of risk associated with every investment available in the market. For those people who want to avoid risks, such an outcome may be helpful because the loan can be repaid.
Tax Benefits: Deliberate on the tax exemptions on home loan interest. It has been mentioned that such benefits cut down your effective interest rate to a level you might prefer to invest, rather than pre pay the loan.
7. Getting 0% Interest Loans
Contrary to one might think, there are some circumstances under which one can get a loan with 0% interest rate. Here’s how you might qualify for one:Here’s how you might qualify for one:
Promotional Offers: Some of the banking and financial entities have promotional loans, where it is offered at a zero percent interest rate for some time. Such can be targeted at finding new clients, for instance, in the case of new service offerings.
Credit Card Offers: There are credit card that allow one to transfer balance and or make purchases with no interest for a specified period. It is important to be careful of theses offers as the tend to attract very high fees and interest rates after the introductory offer period.
Employer Loans: Indeed, some employers provide their employees with interest-free or low interest loans as one of the employee benefits. It is suggested that you consult with your HR department whether or not such options are possible.
8. 8 things that banks don’t want you to know
Sometimes, it may be in the banker’s interest not to reveal all the options which are available to you to save on home loan. Here are eight tips that can help you save money:Here are eight tips that can help you save money:
Interest Calculation Method: The next step is to understand if your bank applies the reducing balance method or has fixed, compound interest rate. As for the application of the two methods, it can be concluded that the reducing balance method is more advantageous to borrowers.
Prepayment Charges: Most of the banks have very high charges on any prepayment that is made. Avoid those loans that attract a penalty in case the borrower pays off the loan before the stipulated time.
Processing Fees: Bargain for processing fees as this is another expense that may be charged before taking a loan.
Late Payment Fees: There is also an information on the penalty for late payment and thus, do not allow a missed EMI or it attracts these charges.
Rate Reset Clause: In case of floating rate loans, know how often the interest rate is revised and the determinant factors to this.
Insurance Requirements: There are situations when insurance policies are offered together with home loans by some banks. Although, make sure that they are not over-insured or paying for unwanted cross covers.
Hidden Charges: Always check the details of the loan agreement for additional charges and if they are in the form of legal fees, administrative charges or documentation fees among others.
Balance Transfer Options: Also constantly bear in mind whether you are able to transfer the balance of your loan to another lender a lower rate? This can help you to cut down the amount repayable over the tenure of the loan significantly.
Final
Being wise in decision making and financially planning for your home loan can help you to clear your home loan early and gain up to 30 lakhs. In other words, steering clear of the middle-class loan trap, knowing all the available options, getting the best rates of interest, and tying all the strings of repayment to the best effect, considerably lessens the load. Bear in mind that the more you try to learn the small stuffs about your loan, the more you are bound to save and be financially free.
