Homeownership is a significant financial commitment, and it is important to find ways to reduce the costs associated with it. One of the most significant expenses when it comes to home ownership is the interest on the home loan. The interest rate on a home loan can have a significant impact on the overall cost of the loan and the monthly repayments. After all, the questions homebuyers often ask themselves are ‘how to reduce home loan interest rate’ or ‘how to reduce home loan tenure.’
In India, there are several ways to reduce the interest rate on your home loan, which can result in significant savings over the loan tenure.
In this article, we will discuss 15 effective ways to reduce the interest rate on your home loan in India, including improving your credit score, comparing interest rates, choosing the right lender, and availing of government schemes. By implementing these tips, you can lower the interest rate on your home loan and reduce the overall cost of homeownership.
How to reduce home loan interest rate?
Reducing the interest rate on your home loan can help you save a significant amount of money over the loan tenure. With a lower interest rate, you can reduce your monthly EMI (Equated Monthly Instalment) and overall interest outgo.
Read on to know how to reduce home loan interest in 15 practical ways.
1. Improve your credit score: A good credit score can significantly impact the interest rate offered on your home loan. A credit score of 750 or above is considered good by most banks and NBFCs (Non-Banking Financial Companies) in India. Improving your credit score can increase your chances of getting a lower interest rate on your home loan.
2. Compare interest rates: Before applying for a home loan, it is important to compare the interest rates offered by different banks and NBFCs. This will help you get a better understanding of the market rates and help you negotiate a better deal with your lender.
3. Choose the right lender: Banks and NBFCs have different interest rate policies and offers. You should choose a lender that is offering a lower interest rate on home loans. You can also consider opting for a lender that offers a floating rate of interest, as it is usually lower than the fixed rate of interest.
4. Opt for a shorter loan tenure: A shorter loan tenure typically results in a lower interest rate because the lender is taking on less risk. The lender is lending you the same amount of money, but over a shorter period of time, which means that they will receive their money back and start earning interest on it sooner. The only drawback is that you will have to pay a larger sum of money each month, but in return, you will pay less interest over the life of the loan.
5. Make a higher down payment: A higher down payment can help you reduce the interest rate on your home loan. This is because a higher down payment reduces the loan amount and the risk for the lender, which can result in a lower interest rate.
6. Choose the right type of interest rate: Fixed and floating interest rates are two types of interest rates offered on home loans in India. Fixed interest rates are constant throughout the loan tenure while floating interest rates are linked to the benchmark rate set by the Reserve Bank of India (RBI). If the RBI reduces the benchmark rate, the floating interest rate on your home loan will also reduce.
7. Negotiate: If you have a good credit score and a stable income, you can negotiate with your lender to get a lower interest rate on your home loan. You can also consider transferring your home loan to another lender if they are offering a lower interest rate.
8. Use the balance transfer facility: If you already have a home loan with a high interest rate, you can consider transferring it to another lender using the balance transfer facility. This will help you reduce the interest rate on your home loan and save a significant amount of money over the loan tenure.
9. Avail government schemes: One of the most common aspects that people tend to overlook while comprehending how to reduce home loan interest rates is various schemes that are made available by the government.
In India, the government offers several schemes to help you reduce the interest rate on your home loan. You can consider availing these schemes, such as the Pradhan Mantri Awas Yojana (PMAY), to get a lower interest rate on your home loan. The Kerala Housing Board Housing Scheme introduced by the Government of Kerala is another beneficial scheme that offers financial assistance at an affordable interest rate and with flexible repayment terms.
10. Consider co-borrowing: If you have a co-borrower with a good credit score, you can opt for co-borrowing to get a lower interest rate on your home loan. This is because the co-borrowers credit score will reduce the risk for the lender and can result in a lower interest rate.
11. Use a home loan EMI calculator: A home loan EMI calculator can help you determine the EMI you will have to pay for different loan amounts, loan tenures, and interest rates. It provides accurate and instant calculations of the monthly instalments that need to be paid towards the loan and helps you to make informed decisions.
12. Revise EMIs annually: With certain lenders, you have the option to review your EMI annually. If you receive a salary increase or have consistently seen an increase in your income, you may choose to raise your EMI. This may seem counterintuitive, but the higher your EMI, the shorter your loan tenure will be, resulting in a substantial decrease in your interest rate.
13. Processing fee waiver: When applying for a home loan, lenders often charge a processing fee in the range of 0.35% to 7%, which can be a significant expense based on the property price. So before applying for a loan, look for lenders that offer a processing fee waiver, which could save you a considerable amount of money.
14. Check and compare insurance options: Home loan lenders typically require borrowers to have home insurance to protect the property. However, lenders may also offer their own insurance policies with higher premiums. Be sure to shop around for insurance policies that fit your needs and budget, and compare the costs and benefits of each option.
15. Check and confirm applicable legal charges: Before signing any home loan agreement, check and confirm all legal charges and fees applicable to the loan. These charges may include stamp duty, registration fees, and other charges that could add to the overall cost of the loan. Be sure to understand all these charges and how they will impact your total cost of borrowing.
To sum things up, reducing the interest rate on a home loan in India can have a significant impact on your financial situation. By following the tips outlined in this article, we hope we have answered your questions like ‘how to reduce home loan interest rate’ and ‘how to reduce home loan tenure.’ Using these tips can help you reduce the interest rate on your home loan and save a substantial amount of money in the long run.
It’s important to take the time to research and compare different loan options and to understand the impact of different interest rates on your monthly instalments. By making informed decisions, you can secure a home loan that works best for you and your financial well-being in the long run.
Now that you have a clear understanding of how to reduce home loan interest, make sure you explore some of our luxurious residential projects in Kerala. These projects are sure to elevate your lifestyle to new heights of opulence!
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