Even if you have the cash to buy a property outright, a well-managed loan makes a life goal easily attainable and is a preferable option. Getting a home loan comes with a number of tax advantages. However, because home loan interest rates are higher, you can end up paying more EMIs.
There are a few considerations you should make if you plan to take a home loan in India. The first is your qualifying requirements, which are determined by your income and ability to repay. The cost of your home loan, which includes processing fees, administrative costs, prepayment fees, etc., is the other important consideration. The length of your home loan, which can be approved for up to 30 years depending on your eligibility, is another crucial factor.
But is there a method to lower the interest rates on your home loan? There is, indeed! Here, we outline some of the most reliable strategies for ensuring that you pay reduced home loan interest rates and avoid burning a hole in your monthly budget.
Ways to reduce home loan interest rates
It’s not difficult to lower the home loan interest rate. We’ve covered every technique you may use to save your hard-earned money in this article.
Maintain a great credit score
How you handle borrowed money is reflected in your credit score. A score of above 750 is regarded favorably because it indicates financial health. You would be viewed favorably by lenders as a reliable borrower, and they would provide you with better loan terms.
It’s possible that missed or late payments are the cause of your low credit score. Keep track of your payment history, the amount you owe, the age of your credit history, any new credit, and the categories of credit you now have in order to raise your credit score.
Make a larger down payment, reduce the loan amount
Taking a methodical approach to house hunting will be advantageous. You can strive to put down more money so that you can later profit from a loan with a smaller balance and a much lower interest rate.
Depending on the borrower’s eligibility, most banks and financial institutions finance between 75% and 90% of the value of the property. Make appropriate plans and make sure you borrow less money so that you may pay less interest.
Decrease the loan tenure
One of the main determinants of the amount of interest you will pay is the loan’s term. Longer terms may result in lower EMIs, but you will end up paying more in interest.
But even though your EMI can be slightly higher if you choose shorter terms, your total amount of interest paid will drop significantly. So, before applying for a home loan, carefully consider your tenure options.
Compare the interest rates online
Before choosing a loan, conduct in-depth research and compare rates. You may find comparisons on a variety of third-party websites, which can give you a clearer idea of all the fees that will be assessed.
Prior to selecting the best bank for you, it is ideal to gain a thorough understanding of the home loan interest rates offered by each institution. Additionally, banks give consumers who are repeat customers or have a solid credit history better rates. If your credit score is even slightly above 800, you can qualify for better rates.
Choose a floating interest rate on your home loan
In contrast to a fixed interest rate, a floating interest rate fluctuates with the rest of the market or other benchmark interest rates. It is typically 1 or 2 percent lower than fixed rates provided by the same lender because it is based only on the market.
This is why some borrowers find it enticing because a lower interest rate translates into more monthly savings. Borrowers shouldn’t worry even if there are instances where the floating rate is higher than the fixed rate because these conditions are transient and won’t affect the loan’s duration overall.
Make regular prepayments
One of the surefire strategies to guarantee a reduction in the overall interest is to make prepayments on a regular basis. The main and interest components of the EMI are split in half. The interest is paid on the amount borrowed.
During the first few months of your loan’s term, you pay more in interest and less in principal. You may utilize a raise, bonus, or income increase to make a prepayment. Due to this, both the principal and interest will be decreased.
Revise EMI’s every year
With some lenders, you can change your EMI once a year. You may choose to increase your EMI if you receive a pay raise or if your income continues to rise. At first, this may sound strange, but as your EMI increases and your tenure shortens, your interest rate will drop significantly.
Refinancing your home loan
The first thing to do is ask your current lender to lower your rate if you feel that they are not providing you with favorable terms. Most lenders will make an effort to retain their loyal clients and may comply. You might request that the bank match the interest rate offered by a rival institution or that they reduce it in light of your credit history.
After then, you might choose to move the loan to a different lender. All you need to do is look for a different lender with interest rates that meet your needs and ask about any additional fees they may charge. The next step is to submit an application to your existing lender, get the required paperwork, and then go to your new lender to complete the KYC and other steps. After that, the new lender will put their policies into practice before approving them for you.
Don’t skip payments
Lenders may consider you a defaulter and take action against you if you miss three EMI payments in a row. The lender will issue you a letter informing you that failure to pay your debts by a specific date could result in you losing custody of your collateral.
One default is sufficient to lower your credit score by at least 50 to 70 points. If your income is interrupted, you can approach the lender and ask for EMI-free time. If you’re between jobs or your business activities have been delayed, banks often waive your EMI payments for three to six months.
