6 Tips to Reduce Your Home Loan Interest Rates

Home Loan interest rate is one of the key components that determine the feasibility of your loan. Low Home Loan interest rates keep EMIs on the lower side and may help in building an asset in a convenient and stress-free manner. In this article, we will share with you some tips on how to reduce Home Loan interest rates and also explain the types of interest rates. 

Tips to Reduce Home Loan Interest Rates

1. Research for the best deals on Interest Rates

To start with, you can talk with various lenders who may offer you a housing loan. You may find one offering you the lowest interest rate. However, you may not see a huge difference in their offerings as most lenders base their rate of interest on similar factors such as credit score among others. Choose to go with the lender offering the lowest interest rate with added benefits and facilities, such as a flexible loan repayment tenor.   

2. Maintain a Good Credit Score

A good score makes you a creditworthy and reliable borrower. Further, a good credit score also gives individuals a negotiating power. Thus, those with a credit score above 750 may get the best Home Loan deals at the lowest interest rates. To maintain a good credit score, clear EMIs on time, pay all credit case bills on time, clear all and not just the minimum due on your credit card and check your credit report for errors from time to time.  

3. Make a Higher Down Payment

Under a Home Loan, lenders sanction anywhere between 75% to 90% of your home's value as a loan, depending on the value of the property. The remaining amount has to be paid by the lender in the form of a down payment. Borrowers can choose to make a higher down payment. If you increase the value of your down payment, not only will your principal amount decrease, leading to reduced interest outgo in the long run, but the lenders may also offer you a lower interest rate depending on your eligibility.

4. Make Prepayments Whenever Possible

If you are an individual borrower paying off a Home Loan on floating interest rates, know that you can make part-payments at any time at no additional costs. Thus, make prepayments whenever possible, such as whenever you get a bonus or an incentive. This will lower your total principal amount, the total interest outgo.  

5. Increase Your EMIs With Time

You can also reduce the total interest outgo by increasing your EMIs in the initial years to match the increase in your income each year. This way, you can save on the total interest amount. 

6. Opt for a Home Loan Balance Transfer

Lastly, if you think your current EMIs are not feasible for you, you can opt for a Home Loan Balance Transfer. A Home Loan Balance Transfer is a facility that allows borrowers to transfer their pending Home Loan from their current lender to another lender offering them lower interest rates and added benefits such as a Top-up Loan. Sometimes, a Home Loan Balance Transfer involves a fee and therefore, one must avail of this facility only after proper financial planning. Further, this option helps borrowers save maximum interest when availed of during the early years of the loan tenor.  

People Also Read: Home Loan Balance Transfer Process 

Types of Interest Rates Offered by Lenders in India

There are majorly two ways in which interest is offered in India – fixed and floating. Let us understand both of them.

1. Fixed Interest Rate

Under a fixed interest rate regime, the Home Loan interest rate offered to a borrower does not change with changing market conditions and stays constant throughout the tenor of the loan until reset by the lender. The biggest advantage of opting for this type of interest rate is that it makes financial planning easy. Since a borrower knows their monthly EMI in advance, they can adjust their other expenses and monthly finances to accommodate the EMI amount each month.

2. Floating Interest Rates

Floating interest rates on Home Loans depend on external market conditions – when Home Loan interest rates go up, the applicable interest rate goes up. The opposite is also true - when Home Loan interest rates go down, your interest rate will reduce. Though with floating interest rates your interest rate changes with the fluctuation in the interest rate, they are cheaper than fixed interest rates, which can be a great advantage.  

People Also Read: Difference Between Fixed and Floating Interest Rates 

Final Words

The interest rate on a Home Loan is an important factor as a low interest rate can save you on the total interest outgo throughout the repayment tenor. Choose a loan tenor and monthly payment that will work best for your financial situation. You may also use our housing loan EMI calculator to determine this. Follow the tips shared in this article to avail yourself of the lowest interest rates on your Home Loan.