Home loan interest rate is determined based on the current market scenario. For instance, RBI controls the repo rate that further influences this rate. On top of that, lenders add their spread, and finally, a rate is proposed to borrowers.
Thus, individuals who want to get rid of fluctuating home loan interest rates can adopt the following measures.
Part-payment
Individuals can make full use of the surplus cash if they have to pay off a considerable portion of the loan. It will allow individuals to save substantially in interest payment and shorten the tenure. Selected financial institutions also facilitate part-payment with minimal charges.
In this respect, they can use an annual bonus, interest income from fixed deposits, maturity and the likes.
Increase EMIs
Generally, lenders tend to increase the loan tenure if interest rate hikes. Even if it temporarily lowers EMI outgo, the cost of borrowing rises exponentially. Thus, it will be wiser for borrowers to opt for a high EMI and reduce the tenure.
However, set home loan EMI amount as per repayment capacity, which will ensure smooth loan repayment.
Pre-payment
Paying off debts quickly allows borrowers to carry on other financial liabilities with ease. Thus, they can pre-pay EMIs to reduce the principal outstanding, in turn, lowering EMI and interest outgo.
Home loan balance transfer
Another effective way to tackle hiked home loan rates is by choosing loan balance transfer. Existing borrowers can transfer their outstanding loan balance to a new lender, which offers better services and lower interest rates. To maximise the benefits, borrowers should opt for this option in the initial phase of repayment when the interest rate generally remains on a higher side.
However, this transfer also accompanies several charges that borrowers have to pay both to new and existing lenders. Thus, before selecting, assess the need for the transfer and cost of it.
These are some of the possible ways to manage hiked home loan interest rate with efficiency.
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