The proportion of the principal amount charged by the lender for borrowing the principal amount is known as the home loan interest rate. If you don't have a solid strategy in place, heavy home loan EMIs (equated monthly instalments) can strain your monthly budget.
Remember that your monthly payments are mostly determined by the amount of your loan, the rate of interest on your loan, and the tenure of your loan.
You might end up paying extra on your loan because of poor planning; hence, it is vital to understand small nuances which can help in saving some money.
Know that home loan rates in the market keep fluctuating, and even a small variance in the rates proposed by the lender can make a huge difference on pockets of borrowers.
Following are some points that you can keep in mind while planning or applying for a home loan, to get the lowest possible home loan rate.
Avail credit for a shorter period
Tenure of the loan is one of the primary factors responsible for the interest you are supposed to pay. Whilechoosing a shorter home loan tenurecan increase your EMI amount, it can also help ensure that your principal is paid off sooner.
Interest is computed on the principal, and once the principal amount is recovered by your financier, the absolute rate of interest paid out decreases slightly. Longer tenures up to 30 years will undoubtedly reduce the monthly instalment amount, but shorter tenures up to 15 years will lower the overall interest liability.
Use a home loan EMI calculator and try different combinations involving principal, tenure, and interest rates to understand the savings associated with shorter loan tenures.
Increase your EMI annually
Increase your EMI by at least 5% every year to accelerate loan repayment and increase your interest savings. Such annual increments in the loan payment schedule will help you in closing the loan before the maturity period
Explore possibilities of the advance payment and extra payment terms with the lender to pay off liabilities, lower the loan tenure and reduce additional interest outgo.
Increase prepayments, wherever possible
On floating rate loans, lenders do not charge prepayment or loan foreclosure fees. So, if you've taken a loan, try to prepay the loan amount, whenever possible. This is because you pay more interest than principal on your loan over the first few years compared to the later years.
Making frequent prepayments will significantly reduce the principal amount, thereby lowering the total interest owed. However, several lenders levy a small amount on prepayments for fixed-rate loans. This amount is usually on a percentage basis. As a result, it's a good idea to check with your lender to get information on prepayment charges.
Check and compare the online rate of interest
Conduct thorough research on loan products before selecting a certain product or lender to compare rates. Various third-party websites can help you understand the rates and other fees charged by different lenders.It is advisable and beneficial to examine house loan interest rates across all financiers before you select a specific lender.
However, make sure you check the terms of your lender cautiously, before proceeding. Sometimes, lenders levy penalties for prepayment or foreclosure. It is best to understand these essential terms and determine your EMI amount through a home loan EMI calculator, before you proceed. Simply enter the loan amount, term, and rate of interest. You'll be able to see not only your EMI but also a thorough breakdown of your repayment timeline, once you've completed the calculation.
Balance transfer on home loan
A balance transfer on your home loan is helpful, if you feel that the interest rate on your current home loan is high. To help borrowers reduce the EMI burden on their outstanding home loan amount, financiers offer the facility of a home loan balance transfer. Through this facility, you can move your outstanding loan amount to another lender, at a lower interest rate.
However, before choosing a home loan balance transfer, it is advisable to read the fine print and know about penalties on prepayment and foreclosure. Make sure you consider moving your home loan to another lender, only if you’re getting a better deal in terms of interest rate, convenience, and flexible terms.
Increase the amount of down payment
Most financiers fund approximately 75% to 90% of the property’s entire worth, expecting borrowers to contribute 10% to 25% of the property’s remaining cost. However, if you have additional funds, consider paying a larger down payment.
By paying a larger down payment, the loan amount is lower, which further reduces the overall interest outgo.
Negotiate for better terms
Financiers tend to offer special rates to employees, existing customers, and borrowers with a solid history. Hence, if you meet any of the criteria, you stand a chance to be offered a lower interest rate on your loan.
It is hence, best to work out a deal with your lender, if you have a prior connection to them. Consider negotiating for better terms and interest rates, so you can reap the benefit of a lower home loan interest rate.
These are some of the best alternatives to acquire the lowest home loan interest rates. However, it is important to choose the right lender, so you can enjoy a hassle-free process with the best interest rates on offer.
Consider choosing a lender like Poonawalla Housing Finance to cater to your housing finance needs in the best possible manner. Benefit from lower interest rates, convenient online facilities, and enjoy a simplified lending journey.