What are some main pointers to follow while reducing your home loan interest rate?

In October 2020, a surge in the demand for home loans created a condition for competitive interest rates. Several reports on this situation showed that the affordable interest narrowed down to nearly 80 basis points of the Government bonds. This demand has been generated due to work from home (WFH) requirements, a decrease in stamp duty, discounts offered by builders, etc.

It is often seen that during the repayment of such credits, individuals often restrain from planning other financial advances. This can be because of the housing loan interest rate, which adds another financial obligation to one’s existing liabilities. This situation can be made favorable by following some simple tricks for reducing housing loan interest.

Ways to reduce the home loan interest rate

1. Choose the tenure carefully

Home loans usually offer repayment terms stretching as long as 20 years. Therefore, an individual must choose an option which will help him/her to reduce the loan interest rate. It is smarter to select a short tenure as it will help in paying the outstanding balance without levying a heavy interest burden. Though choosing a longer tenure lowers the EMI but it increases the interest rate consecutively.

One can learn more about the tenure and home loan interest rate and chalk out your finances accordingly.

2. Make a budget for prepayment

It is suggested that every borrower should have a plan for prepayment or foreclosure. One can prepay the loan amount using salary increment, bonus and other allowances.

Many lenders offer part prepayment facilities without charging any extra fee. Prepayment also helps in reduction of the principal sum, lessening the outstanding housing loan interest.

Eligible borrowers can also benefit from pre-approved offers to enjoy a hassle-free loan process. These offers are available on financial products like business loans, personal loans, credit cards, etc.

Check your pre-approved offer by providing the necessary details like your name and phone number.

3. Go for a home loan balance transfer

Housing loan interest rate may change with revision in the repo rate. Existing home loan customers can look for financial institutions offering attractive interest rates and can shift the outstanding amount to the new lender to avail lower rates. Refinancing the loan can help save money during the repayment tenure.

4. Modify EMI payout

Most lenders allow borrowers to revise the EMI payouts annually. It means borrowers can make use of their salary hike to increase EMI amount, thus reducing the tenure. So, before availing a housing loan, it is better to calculate how much EMI one can afford with the help of an online EMI calculator.

5. Improving credit rating and score

A borrower must hold a high credit score that makes their loan application procedure hassle-free and swift. A lending institution asks for a credit score of 750, or higher. If an applicant has a poor credit history, they must check the ways to improve their CIBIL score for home loans. This will also help them in maximising the creditworthiness and lower loan interest.

6. Compare lending institutions

One of the easiest ways to reduce home loan interest rate is by comparing different lending institutions to find who is offering the lowest rates. Individuals can review the benefits and terms of service that accompany the loan option and choose a lender offering low housing loan interest rate.

Many NBFCs also offer lower interest rates to their existing customers who maintain a solid credit history. Therefore, researching well on the features and repayment options will help a borrower save more.