How to Save Interest on Home Loan
A home loan is usually the biggest financial commitment in a person’s life. Even a small reduction in interest rate or loan tenure can save you lakhs of rupees. This guide explains the best strategies to save interest on your home loan.
Why Saving Interest on Home Loan Matters
Home loans run for 15 to 30 years. Over such long periods, interest payments often exceed the original loan amount. Smart decisions can significantly reduce the total interest burden.
1. Choose the Shortest Possible Loan Tenure
Longer tenure means lower EMI but higher interest. Opting for a shorter tenure increases EMI slightly but reduces total interest drastically.
2. Make a Higher Down Payment
Paying a higher down payment reduces the loan principal, which directly lowers the interest payable over time.
3. Prepay Whenever Possible
Making part-payments or prepayments during the early years of the loan helps reduce the principal faster, resulting in massive interest savings.
4. Choose a Lower Interest Rate
Even a 0.5% reduction in interest rate can save lakhs over the loan tenure. Compare lenders carefully before finalizing your home loan.
5. Opt for Floating Interest Rate (When Suitable)
Floating rates usually remain lower than fixed rates in the long run. If market rates fall, your EMI or tenure reduces automatically.
6. Increase EMI When Income Increases
Whenever your income increases, consider increasing your EMI amount. This reduces the loan tenure and total interest burden.
7. Avoid Skipping EMIs
Skipping EMIs increases interest outflow and damages your credit score. Maintain a disciplined repayment schedule.
Example: Interest Saving Through Prepayment
If you take a ₹50 lakh home loan at 8.5% for 20 years, the total interest payable can exceed ₹55 lakh. A yearly prepayment of ₹1 lakh can save you more than ₹15 lakh in interest and reduce tenure significantly.
Frequently Asked Questions
Is prepayment always beneficial?
Yes, especially during the initial years when interest component is high.
Does increasing EMI reduce interest?
Yes, higher EMI reduces principal faster, lowering total interest.
Can I switch lenders to save interest?
Yes, loan balance transfer to a lower-interest lender can save money if charges are reasonable.