The prices are increasing for living spaces in metro and non-metro towns. This is why Home Loans are now synonymous with buying a house. A Home Loan provides the financial support needed for the high-volume payment on a residential property. Like every other loan, a Home Loan also comes with interest charges. Mortgage interest rates are the primary deciding factor of a loan’s cost to a borrower and form a major component of the EMI. A Housing Loan is usually a long-term commitment of a high amount. Even a slight Home Loan interest rate reduction can help reduce the loan’s cost. Home Loans are repayable through EMIs (equated monthly instalments). When opting for a Home Loan to finance a dream home, a few tips can help you get a lower interest rate.
Here are a few tips one can follow to get the best Home Loan interest rates
- Have a strong CIBIL score: A lender checks the creditworthiness of a Home Loan applicant before granting a loan. The most straightforward route to check an individual’s financial stability is by looking at the credit score. A credit score reflects an individual’s efficiency in managing finances. It shows how disciplined a person has been with past financial commitments like loans and credit card bills.
A strong credit score of 750+ assures the lender that the borrower is less likely to default on Housing Loan. Simple steps, like repaying long-standing debts and paying credit card bills on time, can push the credit score upward. A loan applicant with a good credit score can expect a lower interest rate on Home Loan. So one must check their credit score before applying for a Home Loan.
- Shop around for the best loan options: Various banks offer Home Loans at different interest rates. Top banks in the country provide Home Loans for as low as 8.65% per annum to eligible customers. One can use the online property loan calculator to know beforehand how much interest they will pay on a Home Loan for the desired amount. Choose the bank offering the lowest interest rate and best loan repayment terms.
- Loan down payment: Lenders usually grant approximately 75% to 80% of the property’s present market value as a Home Loan. The home buyer has to pay the remaining amount from their pocket to the seller. This amount is known as the down payment on the property. A bigger down payment results in a smaller loan amount. Loans of smaller amounts attract lower interest rates than high-value Housing Loans. If one has enough savings, one may consider making a higher down payment on the loan to keep the loan amount and interest rate low.
- Duration of the loan: The loan’s tenure affects the interest rate applicable to it. A loan of a longer duration attracts a lower EMI amount, but the borrower pays more interest on a long-term loan. If one can afford to pay a higher EMI every month, it is advisable to opt for a loan of shorter duration to keep the interest charges lower.
- Prepayment on loan: In the initial years, the payment made towards a Home Loan comes with a higher interest portion than the principal. Make prepayments on the Home Loan in these initial years whenever there is an additional cash inflow, like salary hikes, bonuses and incentives. It will help reduce the interest levied on the loan.
- Steady income: Lenders are more comfortable extending a loan to an individual with a secure job and a steady income source. Such borrowers can expect a lower interest rate on their Home Loans. If an individual does not have the required income level, they can consider applying for a Home Loan, and a co-applicant (like a parent or spouse) having a steady income will help. It will strengthen the loan application and improve the chances of getting a low-interest Home Loan.
Also Read: Which is Better for Financing Home Repairs – Top-Up Loan or Home Improvement Loan?
If one is already paying high interest on Home Loans, they might consider the Home Loan balance transfer facility to get lower mortgage interest rates.