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How to Get a Better Interest Rate on Your Home Loan
Home Loans are big-ticket loans, often running into years. It is, therefore, crucial that borrowers try and make their loans as affordable as possible so that the repayment process does not feel stressful ever. One of the best ways to make your Home Loan affordable is to try and avail of the lowest Home Loan interest rates possible.
The interest rate is a key determinant that decides how expensive or affordable your loan will be. Thus, when it comes to Home Loans, the interest rate is one of those variables that borrowers must fix after proper planning and careful consideration.
How to reduce Home Loan interest rates? This article answers this question in detail.
Simple Tips on How to Avail of a Low-Interest Rate Home Loan
Want to avail of a low-interest rate? Here's the first thing you must do: research options. Today, hundreds of different lenders are operating in the market and every different lender will have a different Home Loan offer for you.
So, if you want better interest rates on your Home Loan, talk to as many lenders as possible and ask each one for their offer. This will not only give you an idea of the kind of interest rate you can get but also arm you with more information and better negotiating power.
Maintain an Excellent Credit Score
Once you have made a Home Loan application, the first thing that your lender will do to check your eligibility, as well as creditworthiness, is making a hard enquiry with a credit agency for your credit score.
You must already know by now that a credit score is a 3-digit number between 300 and 900 that indicates a borrower's creditworthiness. The higher your credit score, the better your chances of availing of a Home Loan on low interest rates. Ideally, if you want a Home Loan on low-interest rates as well as favourable terms and conditions, you must maintain a credit score of 750 plus. Anything less than that will prove to be no good.
Read Also: Complete Guide to Securing a Attractive Interest on Home Loans
Apply for a Lower Home Loan Amount Than You Qualify For
Lenders decide the interest rate to be offered to a potential borrower primarily based on the risk involved in lending them the money. If you come across as a risky borrower who is quite likely to default on the loan payment, you will be offered a high-interest rate. On the other hand, if your lender sees you as a low-risk candidate, they will offer you a low Home Loan interest rate.
Therefore, to qualify for a low-interest rate Home Loan, make a higher down payment and apply for a lower loan amount than what you are eligible for. This will reduce the risk involved for the lender in lending you the money and therefore, they will offer you a low-interest rate on your Home Loan.
Opt for a Long Home Loan Tenor
When it comes to Home Loans, borrowers only have two choices. They can either opt for a long tenor, in which case their EMIs will be affordable but their total interest outgo will be on the higher side, or they can keep their home tenor short, in which case their EMIs will be high but they will become debt-free quickly and while also saving on the total interest paid out.
Borrowers must try to find the right balance between affordable EMIs and short tenor. However, lenders offer their best interest rates to individuals who opt for a long tenor. You can also try opting for a long tenor if you wish to keep your Home Loan interest rates low.
Make Prepayments When Possible
When you make prepayments, you do not directly reduce the Home Loan interest rate but you reduce the overall effective interest rate by lowering the total interest outgo.
Individual borrowers who are on floating interest rates can make prepayments at any time without paying any penalty. Individual borrowers who are on fixed interest rates can make prepayments without paying any additional fee if they use their savings to make prepayments. So, use these RBI mandates to your best advantage and reduce your effective interest rate by making prepayments whenever possible.
Link Your Home Loan Interest Rates to the Repo Rate
Repo Rate is the rate at which the Reserve Bank of India lends money to commercial banks within the country. When inflation goes up, the RBI increases the Repo Rate to curb the flow of money within the economy. On the other hand, when inflationary pressures go down, the RBI decreases the Repo Rate, which in turn, leads to an increased flow of money within the economy.
When the Repo Rate goes up, Home Loans become expensive. However, when the Repo Rate goes down, Home Loans become cheaper. Therefore, when borrowers opt for a Repo rate linked Home Loan, they save considerably on EMI payments when the Repo Rate goes down.
Opt for a Home Loan Balance Transfer
Home Loan Balance Transfer refers to the process of transferring one's Home Loan from one lender to another in return for better interest rates and other facilities.
Read Also: All About Home Loan Balance Transfers
If your current lender is charging a very high-interest rate on your Home Loan or isn't transferring the benefits of a repo rate cut to you, you can benefit from a Home Loan Balance Transfer.
Borrowers must opt for a Home Loan balance transfer after proper cost analysis as this facility involves a Home Loan balance transfer fee. Thus, one must opt for a Home Loan Balance Transfer only when the total money saved by way of a low-interest rate is higher than the Home Loan Balance Transfer fee involved. Ideally, a Home Loan Balance Transfer makes sense during the initial years of loan repayment when the interest component of the loan is still very high.
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