To own a home is a coveted dream for many, marred by a lack of financial funds. The fund required to buy a home equals a decade of one’s savings. Hence, a home loan is the only resort for many, which can help them not to leave their dreams half-finished. However, it is essential to understand repaying the home loan amount is not easy. High-interest rates, heavy EMIs and long tenures make us rethink of our options. Any change in the housing loan interest rates can ebb your financial health. You can avoid all these with a wise plan and scrutiny. If you are planning to take a home loan, consider the following tips to reduce your interest rates.
Check for better deals – Banks offer better rates for existing customers and the new customers with good credit history. If your repayments of credit bills and loans were on time, banks might offer lower rates on your loan. Conduct thorough scrutiny before applying for a home loan. Most of the banks provide lower interest rates during festive seasons. Keep looking out for lower interest rate offers by checking the lender’s website frequently.
Opt for Floating Rates – When you apply for a home loan, you get three choices of interest rates to choose. This includes Fixed, floating, and semi-fixed rates. Fixed rates are constant from the beginning to end of the loan tenure. In contrast, floating rates are lower than fixed rates and change with the market interest rates. Floating rates are most suitable for the people who are uncertain about the fixed interest rates.
More down payment - Opting for a bigger down payment is the best way to lower the interest cost. A higher down payment reduces the risk for the lender and hence, increases the chance of loan approval. RBI allows the banks and financial institutions to finance 75% to 90% of the total value of the property. Higher down payment lowers the loan amount. Hence, the interest rates are calculated on a smaller amount. A lower loan amount offers lower interest rates and monthly EMI’s.
Co-borrow the loan with a woman- Banks usually offer lower interest rates for women borrowers. Apply for the loan with any of your women relative as a co-borrower. This will help you avail a loan with a comparatively lesser interest rate. Applying for a joint home loan can also increase your chances of getting the loan.
Refinance the home loan- Refinancing a housing loan simply means transferring the outstanding balance to a new lender. This way, you can enjoy the benefits from other lenders as well. When the interest rates drop, refinance your loan with a new lender. Sometimes, you may have to pay a penalty fee to the current lender and a processing fee to the new lender. Hence, conduct a detailed analysis of the overall cost of loan transfer. You can use the EMI calculator to compare and check how beneficial refinancing your home loan would be.
Increase the EMI – Most of the lenders allow you to revise your instalments annually. Once you get any extra income or a salary appraisal, consider increasing your monthly EMI amount. Revising EMI amounts periodically is a good strategy for lowering the interest as you will repay your loan faster. A small increase in EMI can considerably reduce the interest rate and repayment tenure. Check with your bank to know whether they provide such options.
If you plan to apply for a housing loan, make sure you read the terms and conditions of your lender thoroughly. Do your research and consider the tips to reduce the burden of higher interest rates.