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Top Tips To Lower Your Home Loan Interest Rates

Published On Aug/10/2023

Getting a home loan is the best way to fulfil your dream of purchasing your own home. Even if you have the required funds to buy a house, it is recommended that you get a home loan to avail the tax benefits that are applicable on a Home loans.

One major component of a home loan that decides the overall cost of the loan is the interest rate. Simply put, if the interest rate is high, then you end up paying more for the loan, and if it is low, then the cost of the loan would be lower.

So you must do everything in your power to ensure that you’re payinghome loan interest rates that are affordable to you and are not burning a hole in your pocket. We’ve accumulated some tips that can help you reduce your home loan interest rates.

Maintain a Good Credit Score

First and foremost, even before you apply for your home loan, ensure that you have an excellent credit score. The CIBIL score is an evaluation of your past credit history and repayment capacity.

It is a major factor that helps lenders decide your home loan eligibility. If your credit score is above 750, then you can negotiate a lower interest rate. If your credit score is poor, then the lender will increase the interest rate to cut back on their credit risk.

Thus, it is paramount that you maintain a great credit score before you apply for a home loan. You can do that by repaying your existing EMIs on time and paying credit card bills regularly and punctually.

Reduce The Loan Tenure

It is appealing to increase your loan tenure in order to reduce the home loan EMI. But remember, interest is charged per annum.

This means the longer your tenure is, the more interest you must pay. So even if your EMI is reduced, you end up paying more interest. A sure way to get your interest reduced is to opt for shorter tenures. Yes, your EMI would increase, but the reduction in interest would be pretty significant.

Compare Interest Rates of Different Lenders

It is always prudent to compare the interest rates of different lenders before you zero in on a particular loan offer. Never settle for the first offer that you get.

You can also negotiate to get your loan interest reduced.This is possible if you have an existing relationship with the lender or you have an excellent credit score.

Increase Your Down Payment

The down payment is the initial amount that you pay towards your home purchase. According to the RBI rules, a loan can only be procured for a maximum of 80% of the value of the asset.

The remaining must be paid out of your own pocket. However, this does not mean you cannot pay more as a down payment. The interest rate is applicable on the loan amount. If you reduce the loan amount, then naturally, you would be paying lower interest. Hence, ensure that you pay a higher down payment in order to reduce your interest outgo.

Get a Home Loan Balance Transfer

A balance transfer is the process of transferring your home loan to another lender. Do remember that interest is a huge component of your loan, and you end up paying so much of your money as interest. Thus, if another lender is offering lower interest rates, then you can transfer your loan to that other lender and pay lower interest for the remainder of your loan.

Though you should be wary of some caveats. You may incur balance transfer charges. Check to see whether transferring the loan would still be profitable after paying the charges.

Make Prepayments

If you get a bonus or a salary hike, then you may use the extra funds to make prepayments on your loan. Prepaying your loan would mean you’re reducing the principal amount. Hence, your interest would also get automatically reduced. Do check if your lender charges any prepayment penalties before going ahead with such a loan.

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Conclusion

As evident from the above points, there are many ways to get your home loan interest reduced. Even a small reduction in the rate would end up saving you a lot of your money over the long tenure of a home loan. Thus, ensure that you use the given tips and do everything possible to get your interest rate reduced.

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