Home loan tenures can last for as long as 20 to 30 years. Therefore, reducing the home loan interest rate can save borrowers a lot of money over the loan term. For those looking to lower the monthly payments or pay off the loan more quickly and easily, a few strategies can help. This article explores some of these approaches in more detail and provides tips on how to implement them successfully.
How to reduce home loan interest rates?
- Comparing different lenders:
Shopping around and comparing different lenders is an excellent way to find a home loan with a lower interest rate. With a number of loan providers in the market, borrowers can easily find a loan that fits their budget. Loan applicants can start by getting quotes from several lenders, including banks and Non-Banking Financial Companies (NBFCs). Some lenders may offer the lowest home loan interest rate but at a higher fee. Therefore, it is advised to compare the interest rates, processing fees, and terms and look at the total cost of the loan. - Maintaining a good credit score:
A higher credit score qualifies loan applicants for a lower home loan interest rate. An individual’s creditworthiness is an indication of their repayment capacity. Lenders are usually willing to offer a lower interest to people with higher credit scores as they are less likely to default. Loan applicants can keep an eye on their credit scores on the official CIBIL website. One can aim to keep a credit score of 750 or above. This can be done by paying bills on time, reducing debt, and avoiding new credit until the previous loans are cleared or the credit score is improved. - Negotiating with the lender:
Most lenders share standard, pre-decided interest rates with loan applicants. However, they are open to negotiations with borrowers. Therefore, it is recommended to bargain for a lower interest rate. Applicants with a higher down payment amount, good credit score, and stable income are more likely to strike a good bargain with their lenders. However, it can still be advised for all applicants to try and negotiate. - Making a larger down payment:
A larger down payment can often qualify borrowers for a lower interest rate, as the outgo towards the interest payment is significantly reduced. Therefore, it may be advised to save money through savings and investments and not entirely rely on a home loan. The higher the down payment, the lower the value of the home loan. This will subsequently cut down the money spent on interest over the loan term. In addition, individuals capable of making a higher down payment may also come across as financially secure to lenders and less risky. As a result, lenders may reduce the home loan interest rate. - Prepaying the loan:
Prepayment refers to settling the home loan earlier than the decided schedule. Most lenders offer this option. However, the terms and conditions for the same can differ. Some may charge a fee for it, while others may allow borrowers to prepay the loan at no extra cost. Individuals who may have extra lump sum money earned through a performance bonus, salary hike, gift, inheritance, the sale of an asset, or any other source can consider prepaying the loan to lower their dues and avoid higher interest rates later in the term. - Refinancing through a balance transfer:
A home loan balance transfer allows a borrower to transfer their outstanding home loan from one lender to another. This is typically done to take advantage of lower interest rates and more favorable loan terms. Some people also opt for it to consolidate multiple loans into one.
If the interest rates in the market have dropped since the beginning of the loan term, refinancing through a balance transfer could be a good option for borrowers. However, individuals need to evaluate the costs of the new loan, including fees and terms, and then finalize the balance transfer. In some cases, the existing lender may also be open to reducing the home loan interest rate upon hearing of the balance transfer to retain borrowers.
To sum it up
The minimum home loan interest rate may not always be the best deal. Therefore, borrowers must look at all aspects of a loan, including the lender’s reputation, loan processing fee, tenure, etc., and evaluate all costs.
Further, while these strategies may help loan applicants qualify for a lower interest rate, they may also require some time and effort. It is always a good idea to carefully consider all options and consult with a financial professional before making any decisions about a home loan.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
