5 Tips for Lowering Home Loan Interest Rates in 2024

The interest rate offered on a loan determines its feasibility. Lenders may offer high-interest rate loans to borrowers whose past repayment behaviour has been uncertain and whose current credit score is below 625. A high rate of interest on Home Loans not only leads to high EMIs but also increases the total cost of borrowing by increasing the total interest pay-out. A low-interest-rate housing loan, on the other hand, not only helps one keep EMIs manageable but also reduces the borrowing cost. Borrowers are, therefore, advised to negotiate with their lender for a competitive Home Loan interest rate. 

The rate of interest offered on a house loan depends on several different factors. However, before we attempt to understand these factors and their impact on Home Loan interest rates, let us look at the type of interest rates offered in India.  

Types of Home Loan Interest Rates

Borrowers primarily offer two different types of Home Loan interest rates: fixed and floating. In the case of fixed-rate Home Loans, the rate of interest applicable on the loan, and therefore a borrower's EMIs, remain the same through the tenor of the loan. In the case of floating-rate Home Loans, the rate of interest and therefore, one's Home Loan EMIs vary depending on external economic conditions. A third type of interest rate is also offered by some lenders: hybrid-rate Home Loans. When one avails of this type of rate of interest, they pay loan EMIs on a flat, fixed rate of interest during the first few years of the loan, post which the rate of interest changes to the floating type.  

In our next section, we discuss with our readers simple tips on what they can do to reduce their Home Loan interest rate.  

Ways to Secure Competitive Interest Rate Home Loans

1. Shop for Interest Rates 

When individuals embark on the journey to homeownership, they may rush into the application process. However, it is important to avoid oversight by understanding and engaging in negotiations with various lenders to secure a favourable interest rate. 

2. Maintain a Good Credit Score

An individual's credit score also determines the interest rate they will be offered. Borrowers whose credit score is above 750 are seen as low-risk borrowers and may get offered a low-interest rate by lenders. Therefore, if you are planning to apply for a Home Loan soon, make sure your credit score is at least 750 or above. This will help you reduce the Home Loan interest rate. 

3. Make a High Down Payment

Lenders sanction anywhere between 75% to 90% of a property's value as a loan. When borrowers make a higher down payment, they reduce the loan size and therefore, the total interest payout on the loan. Further, making a sizeable down payment reduces the risk involved for the lender in lending funds and therefore, they may offer lower interest rates to borrowers. 

4. Opt for a Short-Tenor Loan

The risk involved for the lender in the case of long-tenor loans is much higher than in the case of short-tenor loans. Therefore, lenders offer their best Home Loan interest rates on short-tenor loans. Further, when borrowers opt for a short tenor, the total interest payout automatically decreases, which also reduces the effective rate of interest.

Read Also: How to Pick the Best Home Loan Tenor that Suits Your Budget

5. Home Loan Balance Transfer

One of the best ways to reduce one's Home Loan interest rate is to opt for a Home Loan Balance Transfer. A Home Loan Balance Transfer is the facility using which borrowers can transfer their Home Loan to another lender offering lower interest rates and other better loan terms and conditions. 

A Home Loan Balance Transfer involves a transfer fee, which is charged as a percentage of the total loan amount. Borrowers should opt for a Home Loan Balance Transfer only if the reduced interest rate is low enough to help them cover the fee alongside helping them save funds by way of reduced interest outgo in the long run. Home Loan Balance Transfer should be opted for when there is a difference in the new and old interest rates and when the borrower is still in the early years of loan repayment. 

People Also Read: A Quick Guide to Securing a Better Interest on Home Loans 

Final Words

The rate of interest on a Home Loan is one of the key factors that will determine the total cost of borrowing. A low Home Loan interest rate will make it possible for you to repay your loan in a comfortable and stress-free manner. A high Home Loan interest rate, on the other hand, might make Home Loan repayment a challenging task for you. If you are planning to avail of a Home Loan, use the tips shared in this article to secure yourself a low-interest rate Home Loan.