Top Strategies to Reduce Your Home Loan Interest Rate

Those planning to avail of a home loan to help them arrange the funds needed to buy a home must inform themselves about the home loan application process as well as the importance of availing themselves of the lowest housing loan interest rate possible. While educating themselves about the home loan procedure will help them applicant avoid last-minute hiccups and get approved for a housing loan quickly, securing a low home loan interest rate deal will help ease the burden of loan repayment. In this article, we elaborate on some handy tips that can help a borrower reduce the home loan interest rate. 

Top Strategies to Reduce Your Home Loan Interest Rate 

1. Apply for a Home Loan After Thorough Research 

Most individuals, once they decide to apply for a home loan reach out to friends and family members to ask for recommendations for lenders and go ahead with the lender with the most votes. This is the wrong approach to follow. Once you have decided to avail of a home loan, compile a list of all the good and trustworthy lenders in the market. Next, reach out to each of these lenders and talk to them regarding the loan terms and conditions they would be willing to offer you. Finally, compare all the loan offers using a home loan calculator and in the end, go ahead with the most lucrative one. Thorough research is crucial in helping one avail themselves of a low housing loan interest rate and yet this is the step most borrowers skip.

2. Pay a Higher Down Payment 

Borrowers funding a home purchase through a home loan are required to pay a certain percentage of the property's total value before they can be sanctioned a housing loan. This amount is known as a down payment. Most lenders require borrowers to pay 20% to 30% of the property's value as a down payment. However, borrowers can choose to pay a higher down payment as well. By increasing the down payment, a borrower can reduce the home loan interest rate in two ways. First, when one increases the down payment, the principal decreases, which in turn leads to reduced interest payout and therefore, reduced effective interest rate. Second, when a borrower increases the down payment, they reduce the principal amount and therefore, the risk involved for the lender in lending money. Thus, in the case of low LTV ratio loans, lenders are more open to negotiations regarding the possibility of the borrower being extended a low housing loan interest rate.

3. Prepay When You Can 

Let's assume you have already accepted a loan offer and you find out you are servicing your home loan at an interest rate much higher than the housing loan interest rate at which your friends are servicing their home loan. In this case, you can reduce home loan interest rate by prepaying your loan. Prepayment refers to the process of making lumpsum payments towards one's loan. When a borrower prepays their loan, they reduce the principal amount and therefore, the effective housing loan interest rates. Individual borrowers on floating interest rates must necessarily use this facility because as per the recent RBI guidelines, these borrowers can prepay/foreclose their loan without paying any penalty. 

4. Increase Your EMI to Match any Increase in Your Income 

Whether you are salaried or self-employed, it is only natural to expect that your income will increase with time. If you want to reduce home loan interest rates, increase your EMIs with each passing year, to match any increase in your income. Doing so will allow you to become debt-free quickly and also save on the total interest outgo. It will also help you reduce your effective home loan interest rate. 

5. Opt for a Home Loan Balance Transfer 

You have signed a home loan agreement and have already cleared some of your EMIs. However, you recently found out that your lender is charging you a home loan interest rate much higher than what other lenders are charging. What should you do? The answer to your problems can be a home loan balance transfer. Home loan balance transfer is a facility that most lenders offer and using which, home loan borrowers can transfer the remaining balance on their loan account to another lender giving them the option of servicing their loan at a much lower housing loan interest rate. If you plan to balance transfer your home loan to another lender, keep in mind two things. If you are on a fixed rate of interest, your current lender may apply a penalty to you. Second, whether you are on a fixed or floating interest rate, your new lender will charge a home loan balance transfer fee and this home loan balance transfer fee could easily be a high amount. Thus, anyone planning to go for a home loan balance transfer must choose this option after carrying out a proper cost-benefit analysis.

Final Words

Those planning to apply for a home loan must negotiate hard for a low housing loan interest rate. Having a stable job and income and a strong credit profile will certainly allow you to negotiate for a low housing loan interest rate and if you are not happy with your current home loan interest rate, use the tips mentioned in this article to bring down your effective interest rate. Further, borrowers must also use home loan eligibility calculators to figure out the loan amount they are eligible for and apply for this amount or something lower to increase one's chances of availing of a home loan on a lower home loan interest rate.