6 Strategies to reduce home loan interest rate
For many people, owning a home is a cherished dream, but it often comes with a significant price tag. Despite saving diligently, the soaring real estate prices can make it challenging to accumulate enough funds. However, there is a solution: a home loan. Nevertheless, without proper planning and comprehension of the objective, one may find themselves in a financial predicament, paying excessive interest rates needlessly. To adopt a more prudent approach, it is essential to consider the following recommendations and make an informed choice. Here are a few strategies to lower your interest rates.
Strategies to reduce home loan interest rates
Listed below are six effective and verified techniques that can assist you in saving funds on your upcoming Home Loan.
- Improve your credit score
- Choose the right loan tenure
- Opt for a floating interest rate
- Negotiate with your lender
- Make a higher down payment
- Transfer your home loan
#1 Improve your credit score
Your credit score holds utmost significance for lenders in determining the interest rate applicable to your Home Loan. A higher credit score translates to a lower interest rate. Thus, it becomes crucial for borrowers to maintain a favorable credit score. Achieving this entails timely bill payments, maintaining a low credit utilization ratio, refraining from simultaneous loan applications, and avoiding the excessive opening of credit accounts.
#2 Choose the right loan tenure
The loan tenure refers to the duration during which you will repay your Home Loan. Opting for a longer tenure will result in a lower Equated Monthly Installment (EMI), but it may also lead to higher overall interest payments. Therefore, it is crucial to carefully assess your financial commitments and select an appropriate repayment tenure that suits your circumstances.
#3 Opt for a floating interest rate
Home Loans are available with two types of interest rates: Fixed and Floating. With Fixed Interest Rates, the rate remains unchanged over the loan duration, whereas Floating Interest Rates vary based on market conditions. Typically, Floating Interest Rates tend to be lower than fixed rates, making them a financially advantageous choice in the long term. However, it’s important to note that interest rates are subject to fluctuations, and if they rise, there is a possibility of incurring higher payments.
#4 Negotiate with your lender
In India, it is common for individuals to negotiate on various matters, yet many borrowers overlook the opportunity to negotiate for a better interest rate with their preferred lender. If you possess a good credit score, a stable income, and a positive repayment history, you have the potential to negotiate and secure improved terms. Establishing a positive relationship with the bank can also be beneficial. For instance, if you maintain a salary account or have a long-standing account with the bank, you can leverage this association to negotiate a more favourable deal. Remember, building a rapport never goes unnoticed and can lead to advantageous outcomes.
#5 Make a higher down payment
A down payment refers to a single, substantial payment made upfront when availing a loan. It significantly impacts the interest rate applicable to the remaining loan amount. A larger down payment implies borrowing a lesser sum, leading to lower interest rates and Equated Monthly Instalments (EMIs). Moreover, a substantial down payment demonstrates your commitment to repay the Home Loan, portraying you as a less risky borrower in the eyes of the lender. Whenever feasible, strive to make a higher down payment to effectively decrease your overall interest rate on the home loan.
#6 Transfer your home loan
If you have a commendable repayment history and have been servicing your Home Loan for a few years, you may contemplate a Home Loan Balance Transfer. This involves moving your loan to another lender offering a lower interest rate. However, before proceeding, it is crucial to evaluate the associated costs such as processing fees and foreclosure charges. Additionally, it is advisable to thoroughly compare the interest rates, loan tenure, and other terms and conditions offered by different lenders before arriving at a decision.
Also read: 6 reasons for rejection of Personal loan
The bottom line
Getting lower Home Loan interest rates can save you a lot of money over the repayment tenure. By following these six effective strategies, you can certainly lower Home Loan interest rates and make your loan much more affordable. To sum up, maintain a good credit score, choose the right loan tenure, go for a Floating Interest Rate, negotiate with your lender, make a larger down payment and consider transferring your Home Loan to another lender.
Also read: Top Home loans in 2023
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