Want to know how to reduce home loan interest? Read on…
For most people, buying a home is one of the biggest financial commitments they will ever make. Though purchasing a property kind of brings in a sense of achievement, the interest rates often play a spoilsport, denting their excitement to build a space for their family. The ones who have got a loan always wish they had worked out to get a home loan at lowest interest rates, so that they could breathe easy!
What is the Home Loan Interest Rate and How to Reduce the Home Loan Interest Rate?
The home loan interest rate is the amount you are charged by the bank or the housing finance company for borrowing money from it for buying a house. It is usually expressed as a percentage of the amount borrowed, known as the ‘Principal’.
Interest rate is one of the most important aspects of a home loan as it decides the cost of the loan as well as the monthly payment a borrower has to make till the loan is fully repaid. Since the tenure of a home loan usually spans over several years, even a small change in interest rates can have a big impact on the amount you need to pay to the bank. This is the reason why homebuyers always look for home loan at lowest interest rate.
Tips for Reducing the Home Loan Interest Rate
Here are some ways for getting lowest home loan interest rates:
01. Scout for the Lender that Offers the Lowest Rate
Home loan rates vary by lender, so it is always important to shop around for the bank or the housing finance company that offers the lowest home loan interest rates. There may also be special incentives for different types of loans. For example, government-backed USDA mortgages provide special incentives for people living within certain areas or income brackets. So, make sure you do thorough online research, comparing different home loan products to reach the lender that is ideal for you when it comes to the interest rate. Almost all banks, housing finance companies, and non-banking financial companies display their home loan interest rates on their websites. Besides, there are several independent online platforms, which provide prospective homebuyers with details about home loan products and the latest interest rates, making it easy for them to compare.
02. Negotiate with The Lender
Your bank or housing finance company may have initially refused to offer you lowest housing loan interest rates, but you can still try to negotiate with the lender.
03. Make a Larger Down Payment
Risk is one of the key factors that determine the interest rate on your home loan. The riskier the loan, the higher rate the bank or the housing finance company will charge you. The banks lower their risks by asking you to make a down payment. Usually, the lender will ask you to pay up to 20 percent of your loan amount upfront. If you pay down a higher percentage, not only will your monthly mortgage payment be lower, you may also get lowest interest rate home loans.
04. Look for Schemes for Women
Almost all banks and other financial institutions offer women special lowest rate of interest on home loan. The concessions vary from lender to lender, so it is always useful to identify the bank or the housing finance company that gives you the lowest housing loan interest rate.
05. Seasonal Discounts on Interest Rate
Lenders offer modest discounts to offer low interest rate home loans during festivals or other important occasions to boost their sales. If you are planning to take out a home loan, be on the lookout for such offers.
06. Reduce the Tenure of Your Loan
Banks and financial institutions in India offer loans for up to 30 years. If you go for a shorter tenure, you will not only save on interest in the long run, but also get a lowest rate of interest on home loan.
07. Home Loan Balance Transfer
Lenders compete with one another for the attention of the existing home loan customers of their rivals, offering them attractive rates. You can benefit from this competition by transferring your home loan to a new lender that gives you low rate of interest for home loan.
08. Bargain with the Existing Lender
No lender wants to lose a good customer. If you think your home loan interest rate is higher than that being offered by other banks, you can always approach your lender. If you fulfill their conditions, your lender may adjust the low rate of interest for home loan to your advantage.
09. Increase your EMI
If your income is growing, you can increase your EMI to reduce the interest you are paying.
10. Clear your Debts
Banks and other financial institutions offer the interest rate based on a borrower’s credit history, with those with an outstanding credit record getting lowest interest rates home loans. You should try to keep your records clean by clearing your existing debts altogether or paying your dues in time, particularly ahead of applying for a home loan. Also, you should avoid taking fresh loans when your home loan application is in process.
11. Choose Right Property
The value of your house is among the factors that determine the lending rate banks will offer you. So, it is important for you to select the right property before applying for a home loan.
How to Reduce Home Loan Interest?
Reducing the rate is not the only way to lighten the burden of interest on a home loan borrower. There are other ways that help you achieve this goal. One sure way is making part-pre-payment of your home loan. It will reduce the outstanding principal, thus saving you a lot of money in interest.
How to Reduce EMI?
The EMI you pay your lender every month depends on several factors, but one factor that stands out is your credit score. Before starting the process of taking out a home loan, you should make every effort to improve your credit score. Pay your debts, clear your credit card dues and refrain from taking fresh loans. This ensures you get home loan at lowest interest rates. Besides, you can make a larger down payment, opt for a longer loan tenure or get your loan refinanced.
So, what are you waiting for? Work on your credit worthiness, apply the above-mentioned points and try your luck.
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