- Home loans are at the lowest rates ever.
- This is the right time one needs to take advantage of a home loan interest rate reduction.
So, here’s everything you need to know about home loan benefits at lowered interest rates.
Everything around us is gradually opening up and we all are trying to get back to normal with necessary precautions. The Coronavirus led pandemic made Indian financial institutes to lower their home loan interest rates of record-breaking 15 years!
At a time when the economy is still trying to hit the mark and homebuyers are prioritizing job security, finance institutes in India – both public and private are worried about the consumer sentiments.
Both the attractive home loan interest rate reduction and stable property prices are attracting buyers to invest in properties, especially luxury homes (as investments).
Although everyone is discussing record low-interest rates, a new homebuyer needs to know the aspects of getting the most out of low home loan interest rates and thus we have tried to talk about these aspects with this article.
Are lower home loan interest rates available for all homebuyers?
Slashed home loan interest rates are introduced for new customers. In simple words, they are trying to sell a new product to new and fresh customers when there is stiff competition. This doesn’t mean that current customers of the banks cannot be benefitted from the new and lowered interest rates. Existing customers can easily avail of home loan benefits with low-interest rates too but there is a slightly different way for them.
Are home loan interest rates the same for everyone?
Suppose, a bank has lowered the interest rate to say 6.6%, borrowers will assume they are getting access to home loans at a 6.6% interest rate. This assumption is partially correct.
Banks have enough access to borrowers’ credit history and hence, the lowest interest rates are offered to borrowers with good credit scores and for the ones who can easily repay the loans. Banks also consider women and salaried borrowers for lower interest rates. A difference can be observed in the home loan interest rates offered to self-employed individuals and salaried professionals.
So, yes, home loan interest rates are different for everyone.
So, how would you get the most out of low home loan interest rates?
How about switching your home loan?
If you don’t see an option for a low-interest rate with your current home loan lender, you can easily lower your burden by switching to another lender. Well, this is not as easy a process as it seems.
But when does it make sense to switch the home loan?
Experts mention if another lender offers you an interest rate lower than 50 basis points and the rest period of repayment is more than 15 years, then only it does make sense to switch your home loan.
Long tenure home loans and a SIP
Another way to reduce the burden of your home loan is by taking a home loan with longer tenure and starting a SIP in diversified equity at the same time. You might think this is not even relevant to reducing my home loan liability but here is a surprise for you.
For example, you want to take a home loan worth Rs, 25 lakh for a 2 BHK flat in Pune at a 9% interest rate for 20 years.
Here, your EMI for a home loan will be Rs. 22, 493, and the total amount you will end up paying will be Rs. 53.98 lakh. But if you take this loan at 25-year tenure, your EMI will come down to Rs. 20,980 and the total amount you will end up paying will be Rs 62.94 lakh.
Now, here’s a catch. If you opt for a home loan for 25 years and then start a SIP of Rs. 1,135 the amount you saved on your EMI. After 25 years, you will fully pay off your home loan and you’ll still have Rs. 28.43 lakh in your hand. This amount is the expected maturity amount from the equity funds considering 12% annualized returns. Here you paid nearly 9 lakhs on your home loan but received Rs. 28.43 lakh from your SIP. This means you have gained Rs. 19.43 lakh by stretching the tenure of your home loan.
Although we suggest you talk to your financial advisor about this plan.
Regular part payments
If you are capable of making part payment, it will help you minimize your liability faster. You can use your maturity proceeds or annual bonuses to make part payments for your home loan. Part payments indeed help lower your tenure and savings on EMIs and the principal amount you tend to pay in the net.
Pay more than your EMI
Again, if you can manage, try to pay more than the decided amount of your EMI every month. This will help you in the long run and can also help you reduce your home loan burden.
Are you willing to get your home loan reduced drastically? Try to negotiate the terms with your bank or lender and you might get a chance to repay a lower amount and save more for your next investment.
Here is an article you might be interested in. It’s about things you should know while buying a new home in pandemic situations.