How to save money on your home loan

Tips to help you save money before, while and after taking the loan.

Home loan is a lifeline for home loan buyers. With steeply rising home prices, it is not possible for common man to buy a house without the help of a home loan. The home loan EMI means a large payout every month from your disposable income.

A home loan has become part and parcel of buying a home. Not only are loans available at low rates, the government offers tax rebates for taking a loan that making it even more attractive.

Before you take the home loan

Improve your credit rating

Ideally six months to a year before the loan is to be taken you must apply for your credit rating to understand your standing as a borrower. If your score is lower than 750 then you need to try to bring it up to be a prime borrower and get the best rates.

The best ways to improve your credit score is by building a credit history, making payments on time, having a record of borrowing and payments etc.

Research

Before taking a home loan look up the major lenders and find out rates and offers by the lenders. There are often introductory rates that can give a significant advantage.

Check and compare:

• Interest rates
• Any other charges
• Penalty clause for prepayment

Boost your loan eligibility

You can improve your loan eligibility by including your spouse and taking a joint loan. This will give you a better choice in taking a loan.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

While taking the loan

Negotiate hard

The rate and charges quoted by the bank is not written in stone. Negotiate hard to get a better rate and get the charges waived off if possible.

Check all the extra charges

There might be some administrative charges that will hike up the effective rate of interest. Do ensure that you account for them.

Read the fine print

At times there is a dissonance between what your relationship manager may have promised you and what is actually there in the loan agreement so please read it carefully before signing the dotted line.

After you take the loan

Make regular prepayments and make them early in the loan

If you plan to prepay the loan amount partially or fully, it is much better to do so earlier in the loan period as a large portion of the interest is being paid at the beginning of the loan period.

Take advantage of the tax breaks

As per section 80 C a home loan borrower can claim principal repayment component of a loan. Besides the deduction for principal amount, under Section 24(b), you can claim deduction for interest payable on loan taken to buy or construct a house property, (even for repair or reconstruction).

For self -occupied property, the deduction is restricted to Rs 1.5 lakh per annum. However, for a property that is rented a full deduction can be claimed.

Do not increase the tenure of the loan

An increase in the tenure of the home loan will be that you are ultimately paying more interest. It is wiser to increase the EMI of the loan in case the interest rates go up.

Keep your paperwork in order

Maintain home loan repayment records till you finish off with the payments. When the loan is fully repaid, ensure that you take back all the original property documents to discharge the lien on the property.