The interest rate on your home loan is the percentage of your loan you pay to the lender as interest. The higher your interest rate, the more you will pay in interest over the life of your loan. You can lower your interest rate by shopping for a better deal and taking steps to improve your credit score.
You should bear a few things in mind if you plan to take out a home loan. Your income and repayment capacity is the first criteria for home loan eligibility. In addition, various home loan fees are associated, including application, processing, and prepayment fees. It is also essential to consider your loan tenure, which can be up to 30 years in length, based on your home loan eligibility.
What are the best ways to reduce your home loan interest rate?
Your home loan interest rate can be reduced without much difficulty. Below, you will find all the tips to help you save money.
Go for a shorter tenure
Homeowners looking to lower their housing loan interest rate may want to consider opting for a shorter tenure. A shorter term means the borrower will have to pay off the loan in a shorter period, leading to a lower interest rate. Of course, there are some things to keep in mind before choosing a shorter tenure, such as whether or not the borrower can afford the higher monthly payments that come with it. But for those confident they can handle the payments, opting for a shorter tenure could lead to significant savings on interest over the life of the loan.
Maintain a high credit score
Your credit score indicates your ability to manage borrowed funds responsibly. It is considered good if your credit score is over 750, indicating that you are financially sound.
When lenders view you as a reliable borrower, you will likely receive a more favorable interest rate.
There is a possibility that your poor credit score may be the result of either missed or late payments. Therefore, it is imperative to keep a record of your
- credit history
- payment history
- the amount of debt you owe
- the duration of your credit rating
- credit agreements
- the types of credit you are using to improve your credit score
Reduce the loan amount by increasing the down payment
Purchasing a home should be approached in a planned manner. By increasing your down payment, you may receive a lower interest rate with a lesser amount of loan.
According to the borrower’s home loan eligibility, lenders typically provide financing for 75% to 90% of the property’s value. Therefore, planning and borrowing less to pay less interest is essential.
Online comparison of interest rates
When it comes to home loans, the interest rate is everything. A slight difference in rates can mean thousands of dollars over the life of a loan. And while you can’t control the market, you can do your homework to find the best rate possible.
One way to do that is by shopping around. It may take some time, but comparing interest rates from different lenders is worth it. You can compare rates online or by meeting with lenders in person. In addition, many third-party websites provide information regarding different lenders’ rates and fees.
Keep in mind that the lowest rate isn’t always the best deal. Some lenders offer low rates but charge high fees. Others have great rates but require you to have a perfect credit score. So, make sure you compare more than the interest rate when shopping around for a home loan.
Prepay regularly
The most effective way to reduce the total interest rate is to make regular repayments. This is because EMI consists of two components, namely interest paid on the borrowing amount and principal.
It is common to pay more towards interest than the principal during the early stages of your loan tenure. It is possible to make a prepayment if you receive a salary increase, a bonus, or a raise. As a result, the principal portion of the loan will be reduced, and the interest will also be reduced.
Conclusion
These are some of the different ways you can reduce your housing loan interest rate. Some may work better for you than others, so exploring all your options is essential. Reducing your interest rate can save you a significant amount of money in the long run, so it’s worth taking the time to investigate your choices and determine your home loan eligibility.
