What are Some of the Creative Ways to Reduce Home Loan Burden?

Having your own home offers a sense of accomplishment and peace of mind. However, it can only be achieved once you have repaid your home loan in time and at the minimum interest rate possible.

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While it’s smart to do your research and wait for the right home loan option when in the application phase, as this way you can find the best interest rate available, you can reduce your home loan burden even during the repayment phase. The following are some of the creative ways to go about it:

1. Increase EMI Every Year
   Most finance experts agree that it’s a good idea to increase your EMI amount on a yearly basis. For instance, a modest 5% or 10% hike doesn’t really disrupt your monthly budget but the benefit earned in return can be massive.
   Let’s take an example in which you took a home loan of Rs. 50 lakhs for 25 years at an interest rate of 10%. In this, your total interest would be nearly Rs. 86 lakhs. However, if you increase your EMIs every year by 5%, then your total interest amount would be only Rs. 45 lakhs. That’s almost half of the interest saved!
2. Switch to MCLR
   In 2016, all the private sector and public sector lenders moved to the Marginal Cost of Lending Rate (MCLR) system which allows the borrowers to enjoy the changes in the interest rates over time.
   If you got a loan before 2016, then you can ask your bank to change your interest rate to MCLR as well. However, you will need to pay the conversion fee which is usually around 0.5%. It’s up to you to decide whether the fee justifies the interest rate reduction on switching. Otherwise, you may stick to your current interest rate.
3. Refinancing
   If you come across a bank that offers a good refinancing option with a lower interest rate, then you can transfer your loan to them. However, once again you must do the cost-analysis as you have to pay a fee to go through the refinancing process.