A home loan is an essential tool that helps your dream of owning a home come true. However, taking a home loan is a very big decision. Without proper strategy, you will end up paying extra interest unnecessarily. And it will end up being a financial burden to you. Here, let us read about 6 proven strategies that reduce home loan interest rates. By following these tips, you can end up making your monthly payments on the loan manageable and less stressful.
Ways to Reduce Home Loan Interest Rates
Here are some ways to reduce home loan interest rates
1. Step Up Your Credit Score
Lenders generally look at your credit score and decide the rate of interest that they will give you. The higher your credit score, the lower will be your interest rate. So, it is very important to maintain a good credit score and also take steps to improve it if need be. To build and maintain a good credit score, pay your loans on time, do not apply for too many loans, do not open too many credit accounts, and also maintain a good credit utilization ratio. Also, you can use an EMI calculator and do the most precise calculation of the amount you will be able to borrow. This way, you will not be borrowing additionally, since borrowing unnecessarily will put a strain on your finances, and it will be difficult to manage your EMIs.
2. Choose the Correct Loan Tenure
Choose the correct loan duration over which you will be paying the loan back. When your loan tenure is longer, your EMIs will be smaller but you will end up paying more interest. However, if your loan tenure is shorter, your EMIs will be huger but the outgo of interest over the tenure will be lower. You can also consider prepaying your loan to reduce the loan tenure. However, this will come with some additional charges.
3. Go in for Floating Interest Rates
Home loans can be offered either at fixed interest rates or floating interest rates. Fixed interest rates are constant whereas floating interest rates vary according to market trends. Due to their fluctuating nature, they are usually lower than fixed interest rates. However, this is also not a certainty since the interest rate may increase at any time.
4. Make a Higher Down Payment
To reduce your home loan interest rate, you have to make a higher down payment. The higher the down payment, the lesser interest you will have to pay on the remaining amount. The EMIs will also be smaller. Thus making a larger down payment will reduce your interest rate and EMI burden. You will also be perceived as a less riskier borrower.
5. Transfer Your Home Loan
Home loan balance transfer is the process of transferring your home loan to another lender who offers a lower interest rate. However, some additional charges may be involved in this process. So, before doing a transfer, you must check the overall cost of the loan and how it benefits you. Also, it is ideal to compare various lenders for interest rates, terms of the transfer, and loan tenure. Then, you can select the best deal.
6. Negotiate With Your Lender
Borrowers can negotiate with the lender for a lower interest rate if they have a good credit score, a good repayment history, and a stable income. You can benefit from the relationship you have with the bank like having a salary account or a longstanding account to negotiate a better deal.
Conclusion
Lowering your home loan interest rate is highly beneficial. You can save a lot of money. Analyze your financial situation and opt for the best strategy from the 6 proven tips given above to reduce your home loan interest rate.
FAQs
1. How can I reduce my home loan interest rate?
There are some proven strategies to reduce the home loan interest rate. By following them, you can save a lot of money by decreasing the home loan interest rate. They are as follows: Improve your credit score, choose the correct loan tenure, opt for a floating interest rate, negotiate with your lender, make a higher down payment, and make a home loan balance transfer.
2. How to pay a 20 year home loan in 10 years?
The first way is to prepay one extra EMI for each year and your loan will be completed in 17 years. The second way is to voluntarily increase your EMI by 10 percent and your 20-year loan will be paid off in 10 years.