As public sector financial institutions and HFCs passed on the benefit of repo rate cuts announced by RBI in 2020 to customers, the housing loan interest rates dropped dramatically. This came as good news for first time home buyers and helped them finance the purchase of a house with repo rate linked home loans at affordable rates.
While home loans linked with repo rates react to repo cuts faster than MCLR linked credit, there are several other ways in which borrowers can make their loan burden more manageable. Gaining an idea about such methods proves beneficial for both new and existing borrowers and helps them finance the purchase of a house in a hassle-free manner.
Top 5 tips to lower home loan interest rate
Here are some practical ways to lower housing loan interest rate –
Tip 1 – Choose a shorter loan tenor
A short loan tenor attracts a lower rate of interest. It is primarily because financial institutions consider loans with shorter tenor to be less risky in terms of default when compared to loans availed for longer tenor. Individuals can use the housing loan interest calculator to understand how tenor impacts the loan burden.
Tip 2 – Make a higher down payment
Most financiers encourage home loan borrowers to make a down payment of at least 20% of the property price. Though it is normal for borrowers to wish to buy a home with a low down payment, making a higher down payment has its merits. For instance, making a higher down payment lowers the loan requirement, which helps secure funds at a reduced rate.
Tip 3 – Negotiate for better terms
Home loan borrowers who have maintained a clean profile and high creditworthiness are better positioned to negotiate with their lenders for better repayment terms. Individuals can enhance their creditworthiness by repaying the debt on time and maintaining a lower credit utilisation ratio below 30% throughout.
Tip 4 – Consider transferring loan balance
Existing borrowers can take advantage of the loan balance transfer facility to lower their overall repayment burden. With the help of such a facility, individuals can transfer the remaining loan amount to another financier who extends better terms of payment alongside a ower online housing loan interest rate.
However, to ensure that a loan balance transfer works in favour of the borrower, he/she should factor in the loan balance transfer charges. Borrowers should also find out when they should do a home loan balance transfer to save the most on their loan burden.
Tip 5 – Chose prepayment
Part payments also come in handy to lower the housing loan interest burden. Paying a higher EMI every now and then helps repay the loan before the scheduled tenor and helps save on its interest liability. However, before proceeding with this tip, individuals should find out whether their interest type and lender allows prepayment or not.
For instance, in the case of home loans with floating rates, lenders do not levy any prepayment charges. However, those who had availed the loan at fixed rates should first find out whether the savings exceed the interest burden or not.
Most lending institutions are transparent about additional charges, which helps individuals to compute the loan burden beforehand.
These HFCs also provide pre-approved offers to customers, which make the process of applying for a loan simpler. Mostly such offers are available on financial products like home loans and loans against property. Check your pre-approved offer now with your name and phone number.
Besides these, intending borrowers should determine the prevailing housing loan interest rates and compare them to choose the most competitive ones. While at it, they should also make sure to determine the additional charges to know the overall cost of borrowing before making any decision.
