A home loan allows you to get closer to the biggest dream in life – owning a home. However, taking a home loan may involve a lot of stress and anxiety as you will be liable to pay the monthly instalments without fail.
Home loan EMIs can take a significant part of your monthly expenses. These EMIs can vary according to the amount of loan availed, loan tenure, etc. If not planned well, you may end up paying a big amount of money every month with added interest. Remember this is not for short term as repaying a home loan takes long years and it will definitely add on to your financial burden during this period. So are you a home loan buyer looking for ways to reduce your interest rates? We understand your concern and that’s why we are here to help you. It doesn’t matter whether you are planning to take a new home loan or already availed a home loan. Here are some practical tips to reduce your home loan interest rates.
Let us discuss each in detail now:
Choose Shorter Loan Tenures
One of the best ways to reduce home loan interest rate is to avail shorter loan tenure.
The interest payable will vary according to the loan tenure you are choosing. Even though longer tenures will help you cut down the monthly EMI, you will have to pay more interest if you are choosing 20 or 30 years of loan repayment tenure. You can make use of an online EMI calculator to check how much difference it makes when you are choosing a shorter-term i.e say 10 or 15 years. Consult a loan advisor if you need more clarity on this.
Avail Prepayment Facilities
Prepayment of loans will result in a substantial reduction of outstanding loan amount and also reduces the interest payable.
Pre-payment or foreclosure of home loan allows you to repay your loan either partially or fully before the completion of the loan tenure. If you have surplus money received from a bonus, term deposit or any other investments, you can use this money to make the loan repayment.
Most of the lenders or banks offer prepayment facilities with an additional charge in the case of fixed interest rate loans. However, if you have availed a home loan with floating interest rates, you will not have to pay any prepayment charges. So if you are planning to take a new home loan it is better to go for floating interest rate home loan so that you can avail prepayment facility at no charge.
Compare the Interest rates
In the age of the internet, finding the best interest rates has become much easier than before. All you have to do is check a reliable website such as bankbazaar.com which compares the home loan interest rates of different lenders. It is most important that you gain a clear understanding of the market rates before signing up for a home loan. You can either visit individual bank websites serving your location or visit third party websites. Moreover, you can also get an idea about the loan processing fee levied. Hence, before availing a home loan do thorough online research to check which lender offers you the lowest interest rates.
Make a Higher Down Payment
When it comes to home loans, most of the lenders will finance only up to 80-90 % of the total property value. The remaining 10 or 20% amount will be paid by the borrower as down payment. Most of the borrowers will tend to pay the minimum down payment because they think that it will take away all their savings. However, if you consider the interest rates you will pay in the long run, it is better to make a higher down payment which will reduce the total loan amount and associated interest. To be more precise, the higher the down payment, the lower will be the repayment amount & interest rate.
Keep an Eye on the Offers
Banks and financial institutions offer exciting festive offers and seasonal discounts for interest rates. As a home loan borrower, it is important that you keep track of the ongoing offers to grab the best interest deal.
For example, the PMAY (Pradhan Mantri Awas Yojana) scheme introduced by the government offers up to Rs. 2.67 Lakhs credit-linked interest subsidy for people from the Mid Income Segment I & II. Credit score plays a big role in determining the home loan interest rates. So if you have maintained a fairly good credit history and has a credit score above 800 you may be eligible to get a loan at lower interest rates from the lenders. Moreover, you can also negotiate with a lender if you had been their loyal customer for long and maintain a good rapport. Check with your trusted bank or financial advisor to know your eligibility. Another option is to take a home loan in the name of a female member in your family as banks give interest subsidies for women applicants.
Refinance with another lender
Changing the lender is the last option you can consider to reduce the interest rates. Suppose you have availed a home loan many years ago when the interest rates were considerably high. Now if rates are lower than that you can transfer the loan balance to another bank which offers reduced interest rates. Starting from April 2016, banks offer interest rates based on MCLR (Marginal Cost of Funds Lending Rates) as per RBI norms. Unlike the base rate system, this scheme allows the banks to set their own MCLR based on their marginal cost of funds. Any change in the REPO rate will cause a major change in the marginal cost of funds. In short, with the introduction of MCLR scheme borrowers can get the benefits of rate cuts in real-time. Loan transfer can be initiated by contacting your current lender and submitting an application form.
We hope that these tips on how to reduce home loan interest rates were beneficial for you. If you need further assistance on home loans to buy a new house, feel free to get in touch with a property expert at Victoria Realtors.
Looking for an ideal home that fits your budget? You can consider buying a spacious house in Palakkad presented by Victoria Realtors at some of the most beautiful residential localities in Kerala.
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