Which are the Best Ways to Reduce Home Loan Interest Rate?
Posted by Shubham Housing Development Finance Company Ltd. on June 24th, 2022
Since you are considering getting a house loan but are worried about paying higher home loans interest rates, do you want to know how to lower the interest rate? Everything that you need to know to lower your home loan interest rate is explained here. Going farther, most individuals want to own a home, and doing so is one of the greatest financial choices they will ever make. To make this dream a reality, most people opt to obtain a house loan.
Even if you have the funds to buy a property outright, a well-managed loan makes a life goal readily attainable and is a preferable alternative. A variety of tax advantages come with taking out a loan. However, because house loan interest rates are higher, you can wind up paying more EMIs.
There are a few things you need to keep in mind when applying for a house loan. The first is your qualifying requirements, which are determined by your income and ability to repay. The cost of your loan, which includes processing fees, administrative costs, prepayment fees, etc., is the other important consideration. The length of your house loan, which can be approved for up to 30 years depending on your eligibility, is another crucial factor.
But is there a method to lower the interest rates on your home loan? There is, indeed! Here, we outline some of the most reliable strategies for ensuring that you pay reduced home loan interest rates and avoid blowing a hole in your monthly budget.
8 Ways to Lower the Interest Rate on A Home Loan
It's not difficult to lower the interest rate on your mortgage. We've covered every tip you may use to save your hard-earned money in this article.
1. Keep Your Credit Score High
How responsibly you handle borrowed money is reflected in your credit score. A score of above 750 is regarded favourably since it indicates financial soundness. You would be viewed favourably by lenders as dependable borrowers, and they would provide you with better loan terms.
It's possible that missing or late payments are the reason of your low credit score. Keep track of your payment history, the amount you owe, the age of your credit history, any new credit, and the categories of credit you now have in order to raise your credit score.
2. Increase Your Down Payment and Lower Your Loan Amount
It will be advantageous to have a prepared strategy while purchasing your home. You might strive to put down more money so that you can later profit from a loan with a smaller balance and a much cheaper interest rate.
Depending on the borrower's eligibility, most banks and financial institutions finance between 75% and 90% of the value of the property. Make appropriate plans and make sure you borrow less money so that you may pay less interest.
3. Shorten the Loan Term
One of the main determinants of the amount of interest you will pay is the loan's term. Longer terms may result in lower EMIs, but you will end up paying more in interest.
But even though your EMI can be slightly higher if you choose shorter terms, your total amount of interest paid will drop significantly. Therefore, before applying for a house loan, carefully consider the tenure.
4. Online Interest Rate Comparison
Before choosing a loan, conduct in-depth research and compare rates. You may find comparisons on a variety of third-party websites, which can give you a clearer idea of all the fees that will be assessed.
Prior to selecting the best bank for you, it is ideal to have a thorough understanding of the house loan interest rates offered by each institution. Additionally, banks give consumers who are repeat customers or have solid credit history better rates. You can qualify for better rates if your credit score is anything close to 800.
5. Select a floating interest rate for your loan.
In contrast to a fixed interest rate, a floating interest rate fluctuates with the rest of the market or other benchmark interest rates. Since it is based on market conditions, it is often 1% to 2% less expensive than fixed rates provided by the same institution.
Because lower interest equals more monthly savings, some borrowers find it tempting. Borrowers shouldn't worry even if there are instances where the floating rate is higher than the fixed-rate because these situations are transient and won't affect the loan's duration overall.
6. Make Prepayments Consistently
One of the certain strategies to guarantee a decrease in overall interest is to make periodic prepayments. The main and interest components of the EMI are split in half. The interest is paid on the amount borrowed.
During the first few months of your loan's term, you pay more in interest and less in principle. You may utilize a raise, bonus, or income increase to make a prepayment. Due to this, both the principal and interest will be decreased.
7. Update EMI Each Year
With some lenders, you may change your EMI once a year. You may choose to increase your EMI if you receive a pay raise or if your income continues to climb. At first, this may sound strange, but as your EMI increases and your tenure shorten, your interest rate will drop significantly.
8. Getting Your Home Loan Refinanced
The first thing to do is ask your current lender to decrease your rate if you feel that they are not providing you with favourable terms. The majority of lenders will work to maintain their loyal clients and may even comply. You might ask the bank to match an interest rate offered by a rival company or to reduce it in light of your credit history.
After then, you might choose to move the loan to a different lender. All you need to do is look for a different lender with interest rates that meet your needs and ask about any additional fees they may impose. The next step is to submit an application to your existing lender, get the required paperwork, and then go to your new lender to complete the KYC and other steps. After that, the new lender will put their policies into practice before approving them for you.
Everything you need to know about decreasing your home loan interest rates has been addressed in the aforementioned paragraphs. In addition to this, keeping a steady and lengthy work history is another crucial factor. Lenders are more inclined to favour borrowers with long employment history and a consistent or increasing income. In contrast, lenders will be hesitant to approve your house loan if your employment history is unpredictable. In reality, a loan officer will confirm your work status before finalizing your loan. Your home loan approval is likely to be impacted if you quit your work or change employment during the closing process.
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About the AuthorShubham Housing Development Finance Company Ltd.
Joined: August 25th, 2020
Articles Posted: 44
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