Many people dream of purchasing a house. However, only some of us can make intelligent choices regarding such big purchases. Usually, opting for a home loan is necessary for people to fulfil their dreams of getting a house. Even if you have enough money to buy a property outright, a thoroughly thought-out loan makes your life easier.
The interest expense makes up a sizable portion of the monthly interest payment of your home loans. Additionally, the longer the loan term, the higher the percentage of interest payments in total repayments may be, sometimes exceeding what you think. This damages the borrower’s finances and sharply raises the cost of homeownership. Planning your EMIs, however, might assist you in lowering your overall interest and homeownership costs.
Tips to Reduce your Home Loan Interest Rates Burden
The principal amount, interest rate, and loan term are the three main variables that affect your home loan EMI. To easily pay off your house loan debt, you should know the ideal loan amount, interest rate, and duration balance.
Follow these seven essential tips to lower the interest due on your loan if you want to apply for a house loan:
- Go for a Shorter Term
One of the main factors of the amount of interest you will pay is the loan’s term. Longer tenures may result in low EMIs, but you will pay more interest in the end.
On the other hand, If your EMI is slightly higher in the shorter tenure, the total amount of interest you pay will drop exponentially. So, before applying for a house loan, thoroughly consider your loan-term options.
- Prepayments are a Viable Option
One proven strategy to guarantee a reduction in the overall interest is regularly making prepayments. One portion of the EMI is the interest charged on the borrowed money, while the other is the principle.
During the first few years of your loan’s term, you pay more interest and less in principle. You may utilise a raise, bonus, or income increase to make a prepayment. Due to this, both the principal and interest will be decreased.
- Online Interest Rate Comparison
Before choosing a loan term, conduct in-depth research and compare rates. Before selecting the best bank, you must thoroughly understand each institution’s current home loan interest rates. Your chances of getting better rates increase if your credit score exceeds 750.
- Balance Transfer on a Home Loan Could Be an Option
If you think your current home loan interest rates are unjust, you could first ask your current lender to decrease your rate if you feel that they are not providing you with favourable terms. Most lenders will try to retain their loyal clients and may comply. You might request that the bank equal the interest rate offered by a rival institution or that they reduce it in light of your credit history.
- Pay a Larger Down Payment
Taking a structured approach to house hunting will be advantageous. You might strive to put down more money to later profit from a loan with a smaller balance and a much cheaper interest rate.
Most banks and financial organisations finance 75% to 90% of the price of the home based on the borrower’s creditworthiness.
- Get Better Offers with a Maintained Credit Score
How well you handle borrowed money is reflected in your credit score. A credit score above 750 is favourable since it indicates financial soundness. You would be viewed as a valued customer by lenders, and they would provide you with better loan terms. If you have a good score, you might attract better offers.
- Boost your EMI
With some lenders, you could revise your EMI once a year. You can increase your EMI if you receive a pay raise or your income continues to climb. At first, this may sound strange, but as your EMI increases and your tenure shortens, your interest rate will drop significantly.
You may considerably lower your interest costs and pay off your house loan sooner by using the above advice on how to lower the burden of home loan EMIs. Make sure that no action you take to lower your home loan interest rate may harm your financial stability or CIBIL score.
