How to get a low interest home loan: tips and tricks?
To buy a home is a dream of many but many times this dream takes a long time because it is too expensive. Even if one saves the money to meet the skyrocketing prices of the real estate it may not be enough. This dream of getting your own home can be fulfilled through home loans. This decision can be a big one but without proper understanding and strategy it can lead one to financial mess. If you have no knowledge of the interest rates then you can pay a high interest rate while applying for home loans. There are some ways by which the home loan can be borrowed with less interest rate and make an informed decision.
To get a low interest rate: Tips and Tricks
It will help you to get a low interest home loan and saves you money and time.
- Credit score improvement: If you have a high credit score it will lead to a low interest rate on the home loan. These credit scores help the bank to assure the customers credibility. It becomes an important factor while determining the interest rate you need to pay. Interest rate becomes better when your credit score is good. The credit score can be maintained by paying bills on time and avoiding opening of too many credit accounts, keeping the credit utilisation ratio low, and avoiding applying for too many loans at the same time.
- Right loan tenure: The right loan tenure must be chosen wisely. It is the period of time over which you will be able to pay back your home loan. The credit score depends on the right loan tenure because if one fails to pay back the debt amount on time it can lead to a bad credit score. If you opt for longer tenure it will translate to a lower EMI (Equated Monthly Instalment), but this will lead to higher interest rate. Before deciding the loan tenure you should consider all your obligations financially and then choose an ideal tenure for repayment. If you have less knowledge about the same then you can use your EMI calculator with which you can determine the best tenure for home loans. Always remember these before making any repayment that it saves on interest and reduces your loan tenure and it may also come with additional charges.
- Opting for a Floating interest rate: Either on fixed or floating interest rates home loan can be offered. Throughout the loan tenure fixed interest rates remain constant. While the floating Interest Rates fluctuate. This depends on the market conditions. For a more cost-effective option in the long run the floating interest rates are lower than fixed rates. Interest rates can fluctuate as nothing is certain and you will end up with the increasing interest rate.
- Negotiation: It is the quality of us as Indians that we negotiate over anything. Many borrowers miss out a step by not negotiating while taking loans for getting a better interest rate. If you have a better credit score, never fail to negotiate for a better interest rate. If you have a stable income and a better repayment history then it is a plus point. To get a better deal you can leverage your relationship with the bank such as having a long-standing account and salary account.
- Higher down payment : For taking a loan a down payment is a lump sum amount that you will pay. If you have a remaining amount this is quite important for the rate of interest. You borrow less money and a higher down payment that results in a lower interest rate and EMI. A healthy down payment shows your commitment to repay your home loan that makes you a less risky borrower. To reduce your overall home loan interest rate try to make a higher down payment.
- Transfer your Home loan: To have a good repayment history and for a few years if you have been repaying your home loan. To another lender who offers a lower interest rate you can transfer your loan. In the transfer before you make a switch you must first calculate the cost. The interest rates must be compared and the tenure of loan and other terms and conditions. These home loans are not limited to it, it also includes to build a new one or to refurbish the place in which you reside and purchase a new place.
- Consider Prepayments: These prepayments are very helpful for reducing home loan.When you have surplus funds or tax refunds. Consider using them to make prepayments towards the home loans. These directly reduce the principal amount and lead to shorter loan tenure and saving the interest. The pros of making regular prepayments include improved financial freedom, substantial interest saving. The cons of making prepayments is the availability of surplus funds may not be consistent.
- Periodic Lump Sum payments: Make sure you make periodic payments apart from regular prepayments.When you have substantial funds available these payments can be made easily. These payments directly reduce the principal amount and it leads to significant interest and a shorter loan tenure. The pros of periodic lump sum payments are substantial interest savings, accelerated reduction of principal balance. The cons of periodic payments is availability and timing of funds can be unpredictable.
- Regularly monitor: Don’t forget the review of your home loan terms and conditions regularly so that you don’t miss any important information. You can reduce your loan tenure or interest rate lenders offer promotions or special schemes on a periodic basis.
The pros of making regular monitoring and reviewing your loan potential for better loan terms and enhanced loan management. The cons of making regular monitoring and reviewing your loan potential requires time and effort to stay informed about the market trends and lender offers.
Conclusion
It is a significant milestone to become an owner of your own home but the burden of a home loan can be burdensome. With substantial interest payments can be stressful, the EMI strains your finances and a long tenure.