Many prospective homebuyers take Home Loans to fund their dream house purchase. However, they must make careful financial decisions to make their lives easier. That includes using a Home Loan eligibility calculator to borrow an adequate loan amount. The interest charges constitute a considerable part of Home Loan EMIs. Depending on the loan tenure, it may significantly increase the homeownership cost and hurt the borrower’s financials.
Planning to take a Home Loan but afraid of hefty interest charges? Wondering how to minimise the interest rate? Stop worrying any longer, as these tips and tricks will help you grab the best loan offer with the lowest interest rate.
- Use All Your Skills to Negotiate With the Lender
Financial institutions offer low-interest rates to applicants with high credit scores, low financial obligations, and stable sources of income. Even a small difference in the interest percentage results in significant savings over a longer time. Those who fulfil the lender’s Home Loan eligibility criteria and documentation requirements with appropriate margins have the more negotiating power to grab the best interest rate from the loan company.
- Pay More as a Down Payment
Making a bigger down payment is an effective way to grab the lowest rate Home Loan. Most housing finance companies ask for a minimum down payment of 10-30% of the property’s value. That ensures the borrower’s stake in the house, eventually reducing the lender’s credit risk. The higher the borrower’s eligibility, the higher the LTV (loan-to-value) ratio. However, paying more as a down payment indicates a sound financial position, reducing the loan quantum required from the company and attracting a lower interest rate.
- Improve Loan Eligibility
High credit scores, stable income sources, and minimal financial obligations help negotiate lower interest rates from housing finance companies. Use a House Loan eligibility calculator to determine the maximum amount you can borrow from a loan provider. Those who need additional funds may consider adding someone with a good credit score as a co-applicant, improving the repayment capacity. Furthermore, pay off outstanding debts as far as possible to reduce the DTI ratio. Those with a low credit rating must take appropriate steps to increase it before applying.
The credit score reflects how responsible an applicant is while dealing with credit. It varies from 300 to 900. The higher the score, the better the applicant’s eligibility for lower interest rates. Some tips to improve the credit score include the following:
- Reviewing the credit report to identify errors in it and getting them corrected
- Ensuring regular EMI and credit card bill payments
- Using less than 30% of the available credit limit
- Limiting new credit requests
- Retaining old accounts and dealing with delinquencies
- Consolidating debt
- Tracking progress with regular credit monitoring
Achieving a credit score of 650 or above exhibits sound financial habits and well-being. It eventually improves the probability of getting low interest Home Loans on convenient terms.
- Make Regular Prepayments
According to the latest RBI guidelines, loan companies cannot ask for prepayment charges for Home Loans with floating interest rates. Take maximum advantage of this rule and make regular part-payments to reduce the principal amount and bring down the overall interest outgo. Furthermore, revise the EMI payout regularly to increase gradually as the income improves. Most loan companies allow increasing the EMI payouts by shortening the loan tenure, substantially reducing the interest expenses.
- Consider Home Loan Balance Transfer
A Home loan balance transfer, also known as refinancing, is a facility where the borrowers refinance their outstanding loan amounts with new lenders at lower interest rates and easier terms. The procedure is similar to getting a new loan from another financial institution. During the loan tenure, if the borrower finds another lender offering a lower interest rate, they may consider closing their existing loan and transferring its balance to the new company. It leads to significant cost savings and better loan terms and conditions.
Also Read: What You Need To Do Before You Apply For A Loan
These are effective tips to reduce the Home Loan interest cost and minimise the EMI burden. However, before applying for a housing loan, use a Home Loan eligibility calculator to borrow a loan amount you can easily repay to avoid unnecessary financial burdens. Get maximum benefits through income tax deductions and improve credit scores to boost financial stability.