You get the most incredible sense of accomplishment when you own a home for your family. Most individuals take up the best housing loan that they can get to achieve this goal. However, a home loan will come with much responsibility to repay over time. You will be paying a large sum of your monthly income towards the EMI of the loan, which will include the principal and interest. When you add up this interest over a long period, it becomes a significant amount, and you should look for every possible way to reduce this interest on a home loan.
10 Ways to Reduce Your Home Loan Interest Rate
Due to the long tenure of this loan, it is best to get a less interest home loan along with specific other ways to reduce home loan interest rate like the following:
1) Shop for Different Home Loan Offers:
Nowadays, many financial institutions are offering home loans at very attractive terms and interest rates. Therefore, it would be best if you spent significant time researching and gathering information about all the different home loan offers in the market. Then, once you make your comparison, shortlist a few which you think would be best for you to proceed further. It is the first essential step you should take, as it is crucial to help you get the cheapest home loan.
2) Start Your Negotiations:
With the list of the shortlisted money lending institutions, now is the time to sit across the table with them and start with discussions of the home loans offers that they provide. Listen to what they offer and then put your requirements and play hardball, especially when negotiating the interest rates and some other terms of the housing loan. Since you have done your research, it would be easier to deal with as you can draw comparisons with other lending institutes’ offers that you are already aware of. Most importantly, this is the time to bag a low-interest home loan from the financial institutes.
3) Work on Maintaining & Improving Your CIBIL Score:
Simultaneously, along with research and negotiations, it is also vital that you look into your credit standing with the credit bureaus. After all, if you don’t have a good CIBIL score, no financial institution can offer low-interest rates and the best terms on your housing loan. The accepted standard for a good credit score is 750 and above among most money lenders. Therefore, if you have a high credit score, ensure that you maintain it while applying for the home loans, but if it is low, take steps to improve it before applying for the home purchase loan.
4) Ensure You Choose the Right Type of Interest Rate:
Financial institutions offer fixed or variable interest rates to their customers, and you should check the future predictions of the real estate markets to make a choice. If there is a prediction that RBI might increase the Repo rate, opt for a fixed interest rate and if it predicts a drop choose the variable interest rate. It is essential to be aware and make the suitable decision to benefit from reduced home loan interest rates.
5) Increase Your Down Payment:
When you take a loan from a home loan finance company, they provide anywhere between 70% to 90% financing for the property cost. You have to pay the remaining amount of the property cost as a down payment. Increasing this down payment means that the loan amount you take is less, reducing the interest you spend on the housing loan.
6) Choose a Shorter Home Loan EMI Duration:
The longer you take to repay a home loan means you pay interest on it for more time, increasing the interest amount. If you choose a shorter duration to repay the home loans, you save money by paying lesser interest costs. Therefore, during your home loan online apply process, be sure of the amount you can pay monthly and then choose the EMI duration.
7) Opt for a Home Loan with Prepayment Term:
If your home loan has a prepayment option, you should take it and use it for your benefit. The existence of this term means that anytime you have lump sum money, you can use it to pay your loan, which will significantly reduce the principal amount. Since the interest calculations are on the principal amount, reducing this amount will naturally reduce your interest computation.
8) Do a Yearly Revision of Your Home Loan EMI:
Many banks and financial institutions with the best home loan offers to allow you to increase the EMI amount of your home loans every year. So whenever you can increase the monthly repayment amount, it will reduce the duration of the loan EMI and the interest amount.
9) Take Advantage of Tax Exemptions:
The Income Tax Department provides many tax benefits to individuals who take home loans. You can claim these exemptions on the housing loan’s principal and interest amounts. It is an indirect way to reduce your interest expenses with tax savings benefits.
10) Refinance Your Home Loan:
Another way you can reduce your home loans interest rate is through refinancing or balance transfer. It means you transfer the remaining loan amount from one financial institution to another that offers better loan terms and lower interest rates. This process is long and similar to applying for a new home loans, but it can help you pay lesser for the entire loan, including lower interest rates.
Best housing loan offers are something you must identify by putting in a lot of effort and diligence. Understanding all the nuances of the home loan terms will give you more chances to choose the right one applicable to you. It is a considerable sum of money that lending institutes provide and requires a serious commitment to repay every month. Therefore, you must consider all the possible ways to reduce the interest expenses on a housing loan, as it will let you save a lot in this long-term financial commitment.