Obtaining a house is a significant aspiration for numerous individuals, with a mortgage serving as a crucial means to realize this goal. Still, if not properly planned for, the EMIs from these loans can potentially burden your monthly budget. Factors such as interest rate, loan amount and tenure have a major influence on your monthly installment payments. In order to alleviate the load, think about ways to reduce home loan interest rates before and after finalizing the loan. This not only helps with quicker payment but also improves effectiveness.
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 is crucial in determining the amount of interest you will have to pay. Choosing longer tenures, such as 25-30 years, can decrease your monthly payments, whereas shorter tenures, like 10-15 years, can greatly reduce the total interest amount. By using a home loan EMI calculator, you can see how interest decreases with shorter loan periods. Hence, it is important to choose the loan term wisely to avoid paying more interest throughout the loan period.
Boost your credit score
Lenders rely on your credit score to determine the interest rate you will be offered for your mortgage. Having a better credit score means you will pay less in interest, highlighting the importance of keeping a good credit record. Maintain a high credit score by making sure to pay bills on time, keeping a low credit utilization ratio, avoiding applying for multiple loans at once, and not opening too many credit accounts. Engaging in these behaviors improves your credit profile, increasing your chances of getting a home loan with a better interest rate.
Also Read: Know the Difference Between: Plot Loan V/S Home Loan
Make regular prepayments
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If you have taken out a loan, think about making regular extra payments. During the early stages of the loan, a significant amount of your payments go towards interest rather than the principal amount. Frequent prepayments will significantly lower the principal amount, resulting in a decrease in total interest charges. Keep in mind that fixed-rate loan lenders usually require a certain percentage fee for prepayments. It is recommended to speak with your bank or lender to determine the potential prepayment fees that could be imposed.
Make a higher down payment
A down payment is a lump-sum payment made at the beginning of a loan agreement. Its importance is in impacting the interest rate that is applied to the amount that still remains. A higher initial payment results in borrowing less money, which in turn results in a reduced interest rate and monthly installment payment. A large initial payment also shows the lender your dedication to paying back the mortgage, presenting you as a safer borrower. If possible, try to make a larger down payment in order to lower the interest rate on your mortgage.
Bulk up your EMIs
Certain lenders provide the option to adjust your payments on a yearly basis. If you have switched jobs and are now making more money, choosing to pay higher EMIs can reduce the loan repayment duration. A shortened period of owning property leads to a notable reduction in the total interest paid for your loan. Confirm with your lender if these choices are accessible.
Also Read: Home Loan Interest Rates - May 2024
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Ans 1. Make a higher down paymentA higher down payment means you borrow less money, which obviously results in a lower interest rate and EMI. A healthy down payment also shows the lender that you are committed to repaying your Home Loan, which makes you a less risky borrower.
Ans 2. “Home loan borrowers can request their existing lender to reprice their loan rates if there exists a significant difference between their existing rate and the interest rates being offered to fresh home loan borrowers,” says Ratan Chaudhary, Head of Home Loans, Paisabazaar.
Ans 3. Increasing your income, paying down debts, and boosting your credit score can all help lower your risk as a borrower and qualify you for a lower mortgage rate. You can also save up for a larger down payment, as it means the lender has less cash on the line. "Mortgage pricing is all about risk," Sanford says.
Ans 4. While awaiting official announcements, the intertwined influence of government policies and the Reserve Bank of India (RBI) is crucial. Anticipated repo rate cuts by the RBI in 2024 might indirectly lower home loan interest rates, enhancing affordability for homebuyers.
Ans 5. The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025. Here's where mortgage interest rates are headed for the rest of the year and how that will impact the housing market as a whole.
Ans 6. For them, the best option is to repay the loan as fast as possible by increasing the EMI. EMIs should be increased every year in line with the increase in income. This can dramatically reduce the loan tenure. A 25-year loan can be finished off in 10 years if the EMI is increased by 10% every year.
Ans 7. With a longer tenure, your EMI decreases as the number of instalments increases. However, with a longer repayment tenure, your overall interest payment can increase as you pay interest over a longer period. On the other hand, a shorter tenure results in a higher EMI amount but lowers your overall interest.