Acquiring a home is a major life goal for many, and a home loan is often a necessary tool for achieving this dream. However, the equated monthly instalments (EMIs) associated with these loans can strain your monthly budget without proper planning. Key factors like interest rate, loan amount and tenure significantly impact your monthly instalment. To mitigate the burden, consider strategies to lower home loan interest rates both before and after securing the loan. This not only facilitates faster repayment but also enhances efficiency.
How to reduce home loan interest rate?
Here are some valuable tips to help you reduce your home loan interest rate.
Opt for shorter tenure
Your loan’s tenure plays a pivotal role in finalising the interest you’ll be obligated to pay. While opting for longer tenures, like 25-30 years, may lower your monthly instalments, shorter tenures, like 10-15 years, can significantly cut down on the overall interest payable. Utilising a home loan EMI calculator allows you to observe how interest diminishes with shorter loan tenures. Therefore, it’s crucial to carefully select the tenure before committing to a loan, ensuring you don’t incur higher interest payments during the course of your loan.
Boost your credit score
Your credit score stands as a crucial determinant for lenders in establishing the interest rate applicable to your home loan. A higher credit score translates to a lower interest rate, underscoring the significance of maintaining a positive credit history. Uphold a good credit score by ensuring timely bill payments, maintaining a low credit utilisation ratio, avoiding simultaneous applications for numerous loans and refraining from opening an excess of credit accounts. These practices contribute to a favourable credit profile, enhancing your prospects of securing a home loan at a more favourable interest rate.
Make regular prepayments
If you’ve committed to a loan, consider making periodic prepayments. In the initial loan years, a substantial portion of your payments caters to interest rather than the principal. Regular prepayments will notably decrease the principal, leading to a reduction in overall interest. Be mindful that lenders typically impose a percentage charge on prepayments for fixed-rate loans. It’s advisable to consult with your bank or lender to ascertain the prepayment charges that may apply.
Make a higher down payment
A down payment is a single, upfront payment made when obtaining a loan. Its significance lies in influencing the interest rate applied to the remaining amount. A larger down payment translates to borrowing a lesser sum, leading to a lower interest rate and EMI. A substantial down payment also signals to the lender your commitment to repaying the home loan, portraying you as a less risky borrower. If feasible, aim for a bigger down payment to decrease your home loan interest rate.
Bulk up your EMIs
Some lenders offer the flexibility to revise your instalments annually. If you’ve changed jobs and now earn a higher salary, opting for increased EMIs can help shorten the tenure. A reduced tenure corresponds to a significant decrease in the overall interest paid on your loan. Verify with your lender whether such options are available.
FAQs
Can I reduce my home loan interest rate?
Yes, there are several measures you can take to reduce your home loan interest rate, such as boosting your credit score, making timely repayments, bulking up your EMI and making a larger down payment.
Will housing loan interest reduce in 2024?
There is a possibility of housing loan interest rates decreasing in 2024 due to anticipated repo rate cuts by the Reserve Bank of India (RBI). These cuts could indirectly lead to lower home loan interest rates, making homeownership more affordable for potential buyers.
How to ask a bank to reduce interest rate?
When requesting a lower interest rate from your bank, it's essential to present your case persuasively. Explain why a lower rate would benefit both you and the lender, highlighting factors such as your loyalty as a customer, good payment history, improved credit score, or any financial challenges you may be facing.
Why is my home loan interest rate so high?
Your home loan interest rate may be high due to market conditions, your credit score, the loan-to-value ratio, loan tenure, and the type of interest rate you choose.
Who decides home loan interest rates?
Home loan interest rates in India are decided by banks and financial institutions based on factors such as the Reserve Bank of India's policy rates, market conditions, borrower profile, and individual lender policies.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
