Buying a home is one of the biggest financial commitments you will make in your lifetime. With the skyrocketing real estate prices, it becomes increasingly difficult to purchase a house without taking a home loan. While taking a home loan solves your problem of arranging funds for buying a house, it also means that you will have to pay interest on your loan amount. Home loan interest rates can significantly increase your monthly installments and, hence, your overall outflow towards the loan. However, there are ways in which you can reduce your home loan interest rates.
Here are some tips that can help you save money on your home loan:
- Maintain a Good Credit Score –Your credit score is one of the factors that affect your housing loan interest rates. A good credit score increases your chances of getting a home loan at a lower interest rate. On the other hand, a poor credit score can lead to higher interest rates or rejection of your loan application. Therefore, it is crucial to maintain a good credit score. You can improve your credit score by repaying your dues on time, avoiding any defaults, and maintaining a healthy credit mix.
- Opt for a Floating Home Loan –A floating home loan interest rate is linked to the market interest rates. If there is any reduction in interest rates, your home loan interest rate will also decrease, resulting in lower EMI payments. The opposite happens when interest rates rise. Floating interest rates are generally lower than fixed interest rates, making it a cost-effective option for borrowers. However, it is advisable to opt for a floating home loan only if you are comfortable with a certain level of interest rate volatility.
- Increase your Down Payment – A higher down payment reduces the loan amount, which, in turn, reduces the interest you pay on your home loan. Lenders offer lower interest rates to borrowers who have a higher down payment. Also, the higher the down payment, the lower the loan-to-value ratio, which makes you eligible for a home loan at a lower interest rate.
- Compare Home Loans –It is essential to compare interest rates offered by different lenders to get the best deal on your home loan. Opting for the first loan offer you receive might not be the best option. Conduct thorough research and compare interest rates, processing fees, penalties, and other charges of various lenders. Use online comparison websites or approach a financial advisor to help you select the best home loan available in the market.
- Go for a Joint Home Loan –A joint home loan is when two or more individuals apply for a home loan together. A joint home loan improves your home loan eligibility, reduces documentation, and enhances your chances of getting better interest rates. Also, if the co-applicants have a good credit score and a stable income source, it can further help reduce the home loan interest rates.
- Opt for Prepayment of Your Home Loan –Prepaying your home loan is another way to save on your home loan interest rates. Prepayment or part payment of your home loan is the process of repaying your loan amount partially or fully before the term ends. It reduces your principal amount, which, in turn, reduces the interest you pay on your home loan. However, before deciding to prepay the loan, ensure that there is no prepayment penalty or other charges that might nullify the benefits of prepayment.
- Negotiate with your Lender –Many borrowers assume that interest rates offered by the lender are non-negotiable. However, this is not the case. Before applying for home loan, negotiate and try to get a better deal on your home loan interest rates. Several lenders might be willing to offer you a better deal than what they initially quoted. Always remember that it is essential to be assertive and know your worth while negotiating with your lender.
Conclusion
Reducing your home loan interest rates requires careful planning and research. The tips mentioned above can help you save money on your home loan interest rates. Always remember that a penny saved is a penny earned, and that reducing your home loan interest rates can significantly decrease your outflow towards your home loan. It is advisable to consult a financial expert before applying for a home loan to ensure that you make an informed decision that works in your favor in the long run.
