6 Ways to Reduce Your Home Loan Costs and Save More

Buying a home is a major financial commitment, and home loans often come with long repayment periods, high interest costs, and additional charges. Without proper planning, borrowers may end up paying significantly more than the actual loan amount. However, with the right strategies, you can save lakhs on your home loan and reduce your overall financial burden.

Six proven ways to lower your home loan costs:

1. Choose the Lowest Interest Rate Available

One of the biggest factors affecting the total cost of your home loan is the interest rate. Even a slight difference in rates can lead to huge savings over time.

• Compare interest rates from multiple banks and NBFCs before finalizing a lender.
• Opt for a loan provider that offers competitive rates based on your credit score and financial history.
• Check for seasonal discounts and special offers on home loan interest rates.
• Consider fixed vs. floating interest rates based on your risk appetite and market trends.

A home loan with just 0.5% lower interest can save you thousands in interest payments over a 20-year tenure!

2. Make a Higher Down Payment

A bigger down payment reduces your loan principal, directly lowering your EMI and interest burden.

• Lenders typically finance 75% to 90% of the property value. Paying more upfront decreases the loan amount and reduces long-term costs.
• A smaller loan amount means lower interest accumulation over the years.
• Higher down payments also improve loan eligibility and may help secure better interest rates.

If possible, save more before taking a home loan to minimize debt liability.

3. Opt for a Shorter Loan Tenure

While a longer tenure reduces monthly EMI, it significantly increases the total interest outflow.

• A shorter tenure results in slightly higher EMIs but drastically cuts down on interest paid over time.
• For example, a ₹50 lakh loan at 8% interest for 20 years results in ₹48 lakh total interest. The same loan for 10 years reduces interest to ₹22 lakh, saving ₹26 lakh!
• If you can afford higher EMIs, always opt for a shorter repayment period to save big in the long run.

4. Improve Your Credit Score Before Applying

A high credit score (750+) helps secure home loans at lower interest rates and better terms.

• Pay existing EMIs and credit card bills on time.
• Maintain a low credit utilization ratio (less than 30%).
• Avoid multiple loan inquiries within a short period.
• Check and correct errors in your credit report before applying.

A good credit score can mean the difference between an 8% and 9% home loan rate, potentially saving you lakhs in interest.

5. Make Prepayments & Part-Payments

Prepayments help reduce the outstanding principal and, in turn, lower the interest paid.

• Most lenders allow prepayments on floating-rate loans without extra charges.
• Even small lump sum payments every year can cut down your loan tenure and interest costs.
• Example: If you prepay ₹1 lakh per year on a 20-year ₹50 lakh loan at 8% interest, you can reduce the tenure by 5-6 years, saving over ₹15 lakh in interest!

Use bonuses, incentives, or annual increments to partially prepay and save on interest.

Read complete article on this topic with detailed examples - EMI Boost Strategy

6. Increase Your EMI In The Initial Years

Initially, most of your EMI goes towards interest, and only a small portion repays the principal. This happens because the principal outstanding is higher in the early years, and interest is calculated on that amount. Since the principal repayment is minimal in the first 5-10 years, increasing EMI payments early can significantly reduce interest costs.

• If you are left with spare money at the end of each month, it would be wise to increase your EMI using that money.
• By increasing your EMI by 10-20%, you can pay off the principal faster, lowering future interest calculations.
• You can visit your bank to get your EMI increased.

How To Calculate Home EMI and Loan Tenure?

Understanding your home loan EMI (Equated Monthly Installment) and loan tenure is crucial before taking a new loan or to manage your ongoing loan. Checking the imrovements in tenure and EMI before/after making a partpayemnt is also very imporant to manage your home loan efficiently.

Want to simplify the process? Use our Loan EMI Calculator for instant calculations of EMI, tenure and ROI. You can also view and download the amortisation table for the detailed breakdown of the loan emi payments over time.

Bonus: Consider a Home Loan Balance Transfer

If you already have a home loan at a high-interest rate, you can transfer it to another lender offering lower rates.

• A Home Loan Balance Transfer allows borrowers to refinance their loan at better terms.
• Ideal for those with higher interest rates and improved credit scores.
• Always calculate processing fees and charges before opting for a balance transfer.

Example: Refinancing a ₹40 lakh loan from 9% to 7.5% can save ₹5-7 lakh in interest over the loan tenure!

Tax Benefits on Home Loans

Home loan borrowers can also save money through tax deductions if they are (still) opting for Old Tax Regime. After the budget declaration of February 2025, most of the people will be opting for New tax regime for their income, but for some reason, if you are still going to use Old Tax Regime, you can use your home loan to save on taxes. You can use our Income Tax Calculator for calculating your income tax as per the latest budget.

• Section 80C: Claim up to ₹1.5 lakh deduction per year on principal repayment.
• Section 24(b): Deduct up to ₹2 lakh annually on home loan interest paid.
• First-time home buyers can claim an additional ₹50,000 deduction under Section 80EE.

These tax benefits reduce your taxable income, leading to significant savings over time.

Final Thoughts

A home loan is a long-term financial responsibility, but with the right strategies, you can reduce EMIs, cut interest costs, and save lakhs.

• Compare interest rates and negotiate for the best deal.
• Increase your down payment to reduce loan burden.
• Choose a shorter tenure to minimize total interest paid.
• Make regular prepayments to close the loan faster.
• Maintain a strong credit score for better loan terms.
• Use balance transfer options and tax benefits for additional savings.

By implementing these simple yet effective tips, you can repay your home loan faster and achieve financial freedom sooner!