Taking a home loan and building your dream home is a great achievement. However, if you don’t have a proper plan, home loan EMIs or Equated Monthly Instalments can put a severe dent in your monthly budget and savings. Moreover, repaying a home loan is a lengthy process and if you don’t plan it well and get it right at the initial stages, it would affect you for the whole home loan tenure period. So, reducing the rate of home loan interest is something you need to consider seriously. Even reducing a marginal amount on your home loan interest will sum up to be a sizable amount. To avoid all these struggles and save a considerable amount of money, you can always find ways to reduce the home loan interest rate and make repayment convenient and affordable.
So, if you’re planning to take a home loan or have already taken one, and wondering how to reduce the rate of a home loan, consider these 5 essential tips to reduce the home loan interest rate.
Tips to Reduce Home Loan Interest Rate
1. Choose the right banker and right loan offer
Choosing the right banker to reduce the rate of home loans does not necessarily mean choosing the most popular bank or the biggest bank in your city. You need to do your own research and market study by comparing the best rates and services offered by the banks. Although the home loan rate depends on the type of housing, your credit rating, and other things, most banks offer special concession and reduced home loan rates for servicemen, women, central government employees, physically handicapped people, and people who fall under economically weaker section (EWS) or Low-Income Group (LIG). So, if you fall under any of these categories, you can avail home loan at a much lower interest rate.
2. Choose a shorter loan tenure
One simple thing you need to keep in mind when planning to take a home loan is ‘More time = more interest’. Technically, interest is calculated on the outstanding principal amount. So, a longer home loan tenure means that you’ll end up paying more interest and quick repayment of the principal amount leads to lower interest pay-out. You can opt for a shorter loan tenure and ensure that your home loan repayment is done faster, thus resulting in lower interest rates. Although this will reduce your overall interest pay-out, you need to keep in mind that it will also increase your EMI burden.
Also Read: How to Manage Home Loan and EMIs Effectively During the COVID Crisis?
3. Opt for a floating interest home loan
Although the home loan interest rate is fixed by the government, it varies across lenders. Most lenders offer fixed interest rates as well as the floating interest rate. A fixed interest rate as the name implies is a fixed rate for the term of your loan. A floating interest rate, on the other hand, is revised quarterly based on various economic factors. Usually, fixed interest rates are 1% to 2% higher than the current floating rates. As you can see, home loans with floating interest rates offer you more affordability. So, if you expect the interest rates to fall and you want some savings on your interest cost in the near term, opt for a floating interest home loan.
4. Home loan balance transfers are a thing.
If you have already taken a home loan and come across some other lender who offers a lower interest rate on a home loan as compared to your current loan, you can get a home loan balance transfer. This move is only advisable in your early years of loan repayment. Because, during the initial years of the tenure, your EMI would be higher than the principal component, and carrying out a loan balance transfer would be beneficial. Thus, this way, you can benefit from a lower home loan interest.
5. Revise your EMI pay-outs annually
Most banks allow you to revise your home loan installment (EMI) annually. So, if you’re receiving increased income every year, you can consider increasing your payment on your home loan by a small percentage. This will help you save on interest payment and you’ll end up repaying your home loan faster. This is an effective tip for reducing the rate of home loans if you enjoy an increase in net income every year.
Reducing the home loan interest rate helps you realize the dream of owning a home where you can start a family or retire peacefully. So, implement these tips and measure if you want to reduce the rate of a home loan significantly.
Also Read: Top Home Loans for NRIs in India