A home loan is a great way to purchase or build the house of your dreams. But we all know, home loans are big, and can burn a hole in your pocket. Thus, it is important to learn how you can reduce your home loan interest and make it more affordable for you.
Let’s discuss some of the top ways you can reduce your home loan interest rate -
Never accept the first loan offer you receive. Research and take quotations from various banks and financial institutions before settling for a loan.
Use your negotiating power to get a lower interest rate. You can get a lower interest rate if your credit score is high, your income is stable, and your debt-to-income ratio is low. You will also be in a better power to negotiate if you have a long-standing relationship with the bank you are borrowing from.
You can also consider taking a loan on a floating interest rate. This way, you can enjoy lower interest rates, depending on market conditions. However, this will also have a negative impact as you will need to pay more when the interest rates rise.
There are multiple government schemes for people building their first house. There are schemes for every income bracket and they may help you get subsidies that will reduce your interest burden.
You can consider taking a joint home loan with a close relative or partner. The added income and credit histories will improve your creditworthiness and give you more negotiating power.
If your co-applicant is a woman, you can get an additional reduction in interest rates as banks often run offers.
A sure shot way to reduce the burden of your loan is to arrange for a higher down payment. The higher the down payment amount, the lesser you will have to borrow. That way both the interest rate will be affordable for you, reducing your financial burden.
A longer tenure may feel like a good idea for a big loan like a home loan, as it reduces your EMI amount. However, that also means you have to give a higher interest amount. Thus, consider opting for a comfortably shorter tenure. If the EMI gets difficult to handle, you can look into other options for ending your loan earlier.
Partial prepayments are very common for home loans. Any lump sum amount you pay towards your loan will help bring down your outstanding amount, which in turn will reduce your interest and EMI.
Thus, it is a great idea to stay well within budget while your home loan is going on. Keep a fund for pre-payments and once you have enough in it, give it to the bank to reduce your burden. Just remember to check in with your bank about any prepayment charges.
A good credit score is one of the most important factors for credit products, and more so for big loans like home loans. The higher your credit score, the lower the interest rate you will have to pay. Thus, focus on paying your EMIs on time, keeping your credit utilization ratio low, and not taking too many loans at the same time.
Once you have paid the EMIs of your home loan for a few years, you can also consider a balance transfer. You can opt for a lender who will offer you better terms. In fact, if you have been paying your EMIs on time, your credit score also must have improved. That will give you a chance to renegotiate the terms of your loan.
Just make sure to compare the interest rates, tenures, and all terms and conditions before opting for a balance transfer.
The interest rate of a home loan is decided by your bank or lending institution based on many factors, including -
Your credit score & history
Your income
Price & location of the property
Your employment status & type
Your debt-to-income ratio
Amount of the downpayment
Having a house of one’s own is everyone’s dream. When you come close to achieving this dream, you will choose to opt for a home loan to make the journey easier for you. Thus, knowing how you can get a home loan at affordable rates is very important.
You can now also take home loans from Moneyview, starting at just 8.50% p.a.
To reduce your home loan EMI, you need to either increase your tenure or reduce your interest rate.
Yes, you can negotiate with your bank to reduce your interest rate.
Home loan interests were high in 2022-23. However, interest rates are expected to go down by 0.50 - 1.25% in 2024.
Having a high credit score, a good credit history, low debt-to-income ratio reduces interest rates. If you take a secured loan and have high-value collateral, then also your interest rate will be low.
Union Bank of India, IDFC First Bank, and Bank of Maharashtra have the lowest interest rates starting at 8.35% p.a.
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