Home loans are the big talk around right now. Why is it the big talk right now? This is because we are in a generation where second incomes, investments, and so many other factors have led to more people being capable of buying homes. Gen Z right now has taken over that aspect. The big deal comes in when no one is ready to wait a decade and use the money they saved to buy that home- they would rather choose to buy it through a home loan.
Now, home loans do have a certain amount of interest rates that are associated with them. When it comes to those interest rates, we wander about trying to find the right way to get started. This is an article that speaks about some tips and tricks you would need in order to reduce your interest rate.
Tips and Tricks to Reduce the Interest Rate on Your Home Loan
Here are some tips you should never miss when you choose to take out a housing loan:
1) Go for the Shorter Tenure
One of the key factors that would influence the rate of interest you need to pay is the tenure of your loan. Though longer tenures, such as 25 to 30 years, reduce monthly installment amounts, shorter tenures, such as 10 to 15 years, also reduce the overall interest due. Using a house loan EMI calculator, you can see for yourself how the interest rate drops dramatically for loans with shorter tenures. So – before you sign up for a loan, consider the tenure carefully to avoid paying greater interest on your loan.
For instance, let’s just say you are getting a home loan from LIC. Here is what you get when you use the LIC Home loan emi calculator, and these are the numbers:
The principal amount that you want is Rs. 50,00,000, the interest rate for ten years is 7.2%, and the interest rate for 20 years is 9%.
Therefore,
For 10 years, it is Rs. 20,28,514
For 20 years, it is Rs. 57,96,710
Notice the difference? That is why the shorter the tenure, the better.
2) Always Compare Rates
Before selecting a certain product or lender, it is critical that you evaluate several types of home loan interest rate offers and conduct thorough research on loan products. You can compare home loan interest rates on several third-party websites or go to the lender’s official website to learn more about the rates and other fees charged by different lenders. By comparing home loan interest rates offered by several lenders, you can receive the best deal and save a significant amount on interest payable.
3) Prepayments are Always Good
On most floating interest rate house loans, banks and NBFCs do not charge prepayment or loan foreclosure penalties. As a result, if your mortgage has a floating interest rate, you should aim to make prepayments whenever your financial circumstances allow. During the first few years, the majority of your house loan EMI is used to pay the interest, with the remainder used to pay the debt. Making regular prepayments would significantly lower the principal amount, lowering the total interest payable. Some lenders, however, may levy a prepayment penalty on fixed-rate house loan prepayment. Before you take out the loan, you should check with your lender to learn more about the prepayment penalties.
4) Use Balance Transfers
Some lenders provide loan balance transfer services to people who have already taken out a house loan and begun paying prepayments on it. If your current bank or lender’s interest rate is higher than the interest rate offered by another bank or lender, you can transfer the remaining principal amount to the other bank or lender to lower the interest rate. However, there are file transfer fees involved, and you must also obtain permission from your present lender to move the remaining loan balance to another lender.
5) Make a Bigger Down Payment
Most banks and housing financing companies provide house loans up to 75% to 90% of the total value of the property, with the remaining 10% to 25% financed out of your own pocket. If you have extra cash, it is always preferable to make a larger down payment rather than just 10% or 25%. The greater the down payment – the smaller the principal loan amount, which directly reduces the overall interest payable to repay the house loan debt.
6) The Bigger the EMI, the Better
If you have a home loan with a lender that permits you to adjust your payments annually, you should choose a larger EMI if your income rises. Increasing your house loan EMI reduces the loan’s term, and so the interest charged on your home loan would be reduced significantly. However, you should verify with your lender to see if such a program is available.
7) A Good Credit Score is Your Best Friend
There is no lender on the market who does not appreciate a good borrower – one who will repay the loan in accordance with all pre-determined terms and conditions. A lender can determine a borrower’s worthiness by reviewing his or her credit scores. A good credit score could open the door to lower interest rates and more favorable loan arrangements. Lenders such as SBI and Bank of Baroda frequently provide lower interest rates to customers with good credit.
8) Always Negotiate
What if you have previously applied for a home loan without negotiating? Will you be stuck with a higher interest rate for the remainder of the loan term? No! It does not have to be the case because there are strategies to reduce your interest rate.
Final Takeaway
It is not always a tedious job to get things done your way. Sometimes, there are various paths that you have not even explored yet, and when you know it exists, why not take them right? The same stands in the case of trying to get a lesser rate of interest on your home loan.
Also Read: Home loan demand rising in mid, high-range segments
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