Tips to Secure a Better Interest Rate on Your Home Loan

A Quick Guide to Securing a Better Interest on Home Loans-Banner_WC

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Quick Guide for Securing a Better Interest on Home Loan in India_WC

3 min 23 Jan 2024

tips to avail better home loan interest rate

Highlights

Tips for Securing a Better Interest Rate on a Home Loan
How Your Down Payment Amount Can Help Save on Interest

Save on Your Home Loan Interest

While the prospect of purchasing a new house may seem exciting, it is imperative to plan your borrowing journey. The interest rate at which you repay your Home Loan is an important aspect of your repayment process, as it can determine how feasible the loan can be.

Borrowers should consider doing their research and talking to various lenders to secure a favourable interest rate. This can help to make their Home Loan repayment more convenient. To ensure this, here is a list of tips that can help you secure a better interest rate.

Tips to Secure a Better Interest Rate on Your Home Loan

Maintain a Healthy Credit Score

Borrowers should maintain a healthy credit score to avail of a Home Loan with attractive benefits. A borrower with a credit score of more than 750 is likely to avail of a Home Loan at a more competitive interest rate.

Borrowers can check their credit scores online for free. If your credit score is below average, focus on boosting your CIBIL score to enhance the quality of your Home Loan application.

Additional Read: Top Five Ways to Manage Your Home Loan Burden

Link Your Interest Rate to the Repo Rate

Borrowers also have the choice to link their Home Loan interest rates to an external benchmark, such as the Repo Rate. The benefit of linking your interest rate to the Repo Rate is that whenever a reduction in the rate is announced, your Home Loan interest rate will decrease and vice versa; it will increase in case there is a rise in the Repo Rate.

Make a Bigger Down Payment

It is a good idea to put down a sizeable amount as a down payment. The higher the down payment amount, the less you will have to borrow from your lender. A lower loan amount translates to lower EMI payouts and a higher chance of your Home Loan application being approved for a low interest rate, given your financial stability and repayment capacity.

Negotiate Better Terms

As a borrower with a healthy credit score who fulfils the housing loan eligibility criteria, you also hold some power to negotiate for better lending terms, such as a competitive interest rate and a favourable loan tenure. This can be easier for individuals with a credit score of 750 and above. Other factors that make a difference are income, age, and work experience, among others.

Research Options

Researching loan options and talking with different lenders allow borrowers to compare interest rates, fees, and terms offered by each institution. Additionally, understanding lender requirements and market trends helps borrowers prepare stronger loan applications, improving their chances of receiving competitive offers. 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.

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 have a floating interest rate Home Loan can make prepayments at any time without paying any penalty. However, for fixed rate Home Loans, prepayment charges apply if payment is not made from 'Own Sources'.

Note: 'Own Sources' refers to any source other than borrowing from a bank/NBFC/HFC and/or a financial institution.

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.

Additional Read: Important Factors that Affect Your Home Loan Interest Rate

Final Thoughts

While considering the costs associated with borrowing a Home Loan, borrowers must also account for the other fees and charges such as a processing fee. Click here to obtain additional information on specific Home Loan interest rates.

FAQ-tips-for-availing-better-home-loan-interest-rate

FAQs

The interest rate applicable on your Home Loan depends on your credit score, income, and FOIR, among other factors.

Yes, you can benefit from a lower interest rate during the loan tenure through a Home Loan Balance Transfer. This involves transferring your Home Loan to another lender offering better interest rates and favourable terms.

A good CIBIL score of 750 or above can help you secure a better interest rate, as it indicates high creditworthiness.

You can calculate the impact of different interest rates on your EMI using a Home Loan EMI Calculator. Enter the loan amount, tenure, and interest rate to compare how the EMI changes with each range.

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