Achieving the goal of homeownership is a significant milestone for many individuals, and securing a home loan often becomes an essential means to realize this dream. Nevertheless, the monthly equated monthly instalments (EMIs) linked to these loans can impose strain on your monthly budget if not approached with careful planning. Crucial elements such as the interest rate, loan amount, and tenure play a substantial role in determining the monthly instalment. To alleviate this financial burden, it is advisable to explore strategies aimed at reducing home loan interest rates both before and after obtaining the loan. This not only expedites the repayment process but also enhances overall efficiency in managing your finances.
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
The duration of your loan holds a crucial influence on determining the interest you will ultimately need to repay. Opting for extended tenures, such as 25-30 years, might result in lower monthly instalments, but choosing shorter tenures, like 10-15 years, can significantly reduce the overall interest obligation. Utilizing a home loan EMI calculator enables you to visualize how interest decreases with shorter loan tenures. Hence, it is essential to meticulously choose the tenure before committing to a loan, ensuring that you avoid incurring higher interest payments over the course of the loan.
Boost your credit score
The interest rate assigned to your home loan by lenders heavily relies on your credit score. A higher credit score results in a lower interest rate, emphasizing the importance of maintaining a positive credit history. Sustain a favorable credit score by making timely bill payments, keeping a low credit utilization ratio, refraining from simultaneously applying for multiple loans, and avoiding the opening of excessive credit accounts. These habits contribute to a positive credit profile, improving your chances of obtaining a home loan with a more advantageous interest rate.
Make regular prepayments
If you have taken on a loan, contemplate making intermittent prepayments. During the initial years of the loan, a significant portion of your payments goes towards interest rather than the principal amount. Consistent prepayments will significantly reduce the principal, resulting in an overall reduction in interest payments. Keep in mind that lenders often levy a percentage charge on prepayments, especially for fixed-rate loans. It is recommended to communicate with your bank or lender to understand the applicable prepayment charges.
Make a higher down payment
A down payment is a singular, initial payment made during the acquisition of a loan. Its importance lies in its impact on the interest rate applied to the remaining amount. A more substantial down payment results in borrowing a reduced sum, leading to a decreased interest rate and monthly installment (EMI). A significant down payment also signifies to the lender your dedication to repaying the home loan, presenting you as a less risky borrower. If possible, strive for a larger down payment to lower your home loan interest rate.
Bulk up your EMIs
Certain lenders provide the option to annually adjust your installments. If you have switched jobs and are now earning a higher salary, choosing to increase your EMIs can assist in reducing the loan tenure. A shorter tenure corresponds to a substantial decrease in the overall interest paid on your loan. Confirm with your lender whether such alternatives are accessible.
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