Home Loan: The Reserve Bank of India has raised interest rates for the seventh time this year, since May. Following this hike, the revised repo rate is currently 6.25%. Following the RBI’s ruling, vehicle loans, personal loans, and other types of loans will become more expensive. Home loans will become more expensive for both new and existing consumers as a result of this. In the last year, interest rates have risen by 190 basis points. With an additional 35 basis point rise, the total increase now stands at 2.25 percent. In this case, if you took out a home loan at 6.75% a few months ago, the identical loan will suddenly be available at 9%. This represents a significant surge in interest in a year.

How to reduce interest load?

Before taking the loan homebuyers should determine whether to prepay the total loan or partially in light of the 2.25 percent hike in the repo rate. If you choose a longer term, the interest rate will be substantially greater. In this section, we will discuss what homebuyers can do to lower their EMI load. According to experts, prepayment of the loan should now be considered in order to lower the interest burden. If you have extra money, you can use it to minimise your EMI payments. If you are unable to secure additional funds for prepayment, you can choose to increase your EMI by a fixed percentage per year. Here are some pointers to help you negotiate the rising home interest rates.

Strategy to lower loan interest

Prepaying your loan with an annual bonus or other source of income is the best strategy to lower your interest load. “It is advisable to prepay your home loan when finances are available,” says Adil Shetty, CEO of BankBazaar.com. You can shorten the rising loan period by doing so. For example, if you pay 5% of the loan sum each year, you will be able to pay off your 20-year loan in 12 years. Your loan can be paid off in 17 years if you pay one additional EMI per year. If you increase your EMI by 5% each year, you can pay off your loan in less than 13 years. A 10% annual rise in your EMI can settle your loan in around ten years.”

Refinance with your lender

You may request your lender for a lower rate. This can charge you a processing fee of nearly Rs1, 000. But it is quick and less paperwork process.

Deal with other lender 

If you are finding better deal, you can opt for balance transfer with any other lender. You may be charged processing and legal fees, MOD charges.

Pay higher EMIs

You can choose to pay higher EMIs if it is feasible for you. This will help you repay your loan faster. However, this will increase your EMI.

Pay an additional EMI once a year

Paying an additional EMI at the beginning of every year can reduce your interest significantly. This helps in repaying your loan faster.

Pay 5% of the annual loan

Prepay 5% of the loan balance once every 12 months. Through this also you can repay your loan faster.

Pre-close if the rate is too high

Lastly, you can prepay the loan in full. It ensures protection from financial stress. However, you may not be able to claim tax benefits.