Buying a home is undeniably exciting and a ‘dream come true’ feeling, but it also comes with an enormous expense. With real estate prices skyrocketing, you need a lot of money to make a property your ‘own’!
Having a home loan certainly makes it easier for you. Most banks and NBFCs offer easy home loans. The process of obtaining a home loan is extremely simple. The lenders offer loans to the borrowers and charge an interest rate in return. If your interest rate is higher, you will end up paying a huge home loan amount. Conversely, if you can get a home loan at a lower interest rate, the overall cost of your home will become much lower, you can save substantially, and ensure financial wellness.
Taking a home loan is a big decision. You need a proper strategy, financial literacy, and an understanding of how you can lower your overall home loan amount by reducing the interest rate. To avoid paying extra interest rates unnecessarily and take a better approach, we suggest a few ways in which you can lower your home loan interest rates.
Top Tips To Reduce Your Home Loan Interest Rate
Here are some simple and proven strategies for lowering your home loan interest and saving money.
1. Improve your Credit score.
Are you aware that your credit score is one of the prime determinants lenders consider when setting your home loan interest rate? Yes, you must know that lower interest rates come with a better credit history. When your credit bureau score is good, you pay a lesser interest rate. This is because the lenders view the people with good credit health as ‘less risky’ borrowers. This gives them the confidence to extend loans on relaxed terms, including lower interest rates. This makes it important for the borrowers to work towards credit improvement. You must maintain a good credit score by paying your bills on time, keeping your credit utilisation ratio low, having a diverse credit mix, having a long credit history, and not applying for too many loans simultaneously.
It is also important to check your credit report. Due Factory, a credit repair company, can provide you with a free credit report and support you with necessary measures for credit building.
2. Selecting A Shorter Loan Tenure
One of the other effective ways to lower your home loan interest rate is by choosing a shorter home loan tenure. The tenure of a loan is the period over which you will repay the home loan. If you choose a longer tenure, you will certainly have a lower EMI or Equated Monthly Instalment, but you will pay a higher interest. Alternatively, if you select a lesser loan tenure, you will have to bear EMIs of a higher amount, but you end up paying a lesser interest amount. So, before finalizing your EMI and loan repayment tenure, be cautious and consider all your financial obligations. Choose an ideal repayment tenure that can work for you and save your interest considerably.
One of the best ways to ascertain your EMI and interest rate is to use an EMI calculator. These calculators are available online and can help you determine the best tenure for your home loan.
3. Consider a Floating Interest Rate
You might know that home loans are offered with two interest rate methods: fixed and floating. The former remains constant throughout your loan payment tenure, while the latter fluctuates according to market conditions. Floating interest rates are sometimes lower than fixed interest rates and, hence, a more economical option for borrowers. However, interest rates can fluctuate and become higher than usual, and you might have to pay a bigger amount, too!
4. Choose Prepayment Option
Another thing to note is that you can make prepayments and reduce your loan tenure and interest amount, too. However, this may attract a penalty or additional charges. You must also know that some lenders do not charge loan prepayment charges on floating interest-rate loans. So, you can make many prepayments from time to time and lower cost of loan. We advise contacting your lender and knowing the prepayment charges according to your interest rate type.
5. Compare Interest Rates and Pick the Best Deal
It is essential to conduct deep research on loan products and choose the lender that offers the most attractive interest rate for a home loan. Many websites allow you to compare interest rates offered by different lenders. Ensure to spend some time comparing them and then decide on a particular lender.
6. Negotiate with your Lender
Yes, this one might also work! Consider bargaining with your lender to get a better interest rate. If you have a good credit score, you can always negotiate with the lender, and things might work in your favor! You can show your lender the documents stating your stable income, positive repayment history, and more. Due Factory can do your credit counselling and help you get a better credit score!
A good relationship with the lender may also get you better interest rates. Leverage your relationship with the lender like a salary or a long-standing account, to negotiate and get a better deal.
7. Increase the Amount of the Down Payment
Try to pay a higher lump sum amount for taking a loan. This will reduce your EMI and lower your interest rate, as the interest rate will be levied on the remaining amount. You will pay a lesser interest if the remaining amount is less. So, a higher down payment translates into borrowing less money and paying lower interest and EMI. A healthy down payment will also lower your liability and make your EMIs easier to pay.
8. Increase your EMI
Another strategic way to lower your interest rate is by paying higher dues. Some lenders allow you to revise your EMI annually. So, if you can afford to pay higher, go for higher EMIs and reduce the tenure. Your overall interest will decrease substantially once you lower your home loan tenure.
Wrapping up
A home loan at a lower interest rate can bring you considerable savings. By following these strategies, you will certainly be able to lower your home loan interest rate, making your loan much more affordable. Ensure you have a good credit score, choose the correct loan tenure, consider floating interest rates, negotiate well with your lender, and try to make a heavier down payment to lower your home loan interest rate.
Disclaimer: This article provides a general guide to the subject matter. You should seek specialist advice about your specific circumstances.
FAQs
1. What are the best ways to lower by home loan interest rate?
Ans. You can lower your home loan interest by maintaining a good credit score, choosing a shorter home loan tenure, considering a floating interest rate, negotiating with your lender, making a heavier down payment, paying higher EMI, etc.
2. How does paying more downpayment lowers home loan interest rates?
Ans. When you pay a higher lump sum amount, it will reduce your EMI and lower your rate of interest, too, as interest will be charged on the remaining amount. If the remaining amount is less, you will pay a lesser interest amount.
3. How does paying more EMI lowers home loan interest rates?
Ans. When you pay a higher EMI, you can reduce the tenure, thereby lowering your overall interest.
4. On what basis can I negotiate with my lender and bring down my interest rate?
Ans. Bargaining with your lender for a better interest rate becomes easier if you have a good credit health, stable income, positive repayment history, a good relationship with the lender, and more. Due Factory can guide you further on this.
5. Does doing loan prepayment attract a penalty?
Ans. Making prepayments can reduce your loan tenure and interest amount, but they might also attract penalties or additional charges. Speak to your lender for more details.