Home loan

5 Important Tips to Lower the Interest Rate on Home Loans

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Home loans are all the rage right now. Why is this the big talk right now? This is because we are in a generation where secondary income, investments and so many other factors have made it possible for more people to be able to buy a house. Gen Z right now has taken over this aspect. The big problem comes when no one is willing to wait a decade and use the money they’ve saved to buy that house – they’d rather choose to buy it through a home loan.

Now home loans have a number of interest rates associated with them. When it comes to these interest rates, we’re wandering around trying to figure out the right way to start. This is an article that talks about some tips and tricks that you would need in order to lower your interest rate.

Tips and tricks to reduce the interest rate of your mortgage

Here are some tips you shouldn’t miss when choosing to take out a home loan:

1) Opt for the shortest duration

One of the main factors that affects the interest rate you have to pay is the term of your loan. Although longer terms, such as 25 to 30 years, reduce the amount of monthly payments, shorter terms, such as 10 to 15 years, also reduce the overall amount of interest owed. Using a home loan EMI calculator, you can see for yourself how the interest rate drops dramatically for loans with shorter terms. So, before taking out a loan, think carefully about the term to avoid paying higher interest on your loan.

For example, let’s just say you get a home loan from LIC. This is what you get when you use the LIC Home Loan EMI Calculator, and here are the numbers:

The principal amount you want is Rs. 50,000,000, the interest rate for ten years is 7.2% and the interest rate for 20 years is 9%.

Therefore,

For 10 years it is Rs. 20,28,514
For 20 years it is Rs. 57,96,710

Notice the difference? That’s why the shorter the term, the better.

2) Always compare rates

Before selecting a certain product or lender, it is essential that you evaluate several types of home loan interest rate offers and thoroughly research loan products. You can compare home loan interest rates on several third-party websites or check the lender’s official website to learn more about the rates and other fees charged by different lenders. By comparing home loan interest rates offered by multiple lenders, you can get the best deal and save a significant amount on interest payable.

3) Advance payments are always good

On most variable interest rate home loans, banks and NBFCs do not charge prepayment or loan foreclosure penalties. Therefore, if your mortgage has a variable interest rate, you should aim to make prepayments whenever your financial situation permits. During the first few years, the majority of your EMI home loan is used to pay interest, with the rest used to pay debt. Making regular prepayments would significantly reduce the amount of principal, which would reduce the total interest payable. However, some lenders may levy a prepayment penalty on the prepayment of a fixed rate home loan. Before taking out the loan, you should check with your lender to find out more about prepayment penalties.

4) Use Balance Transfers

Some lenders offer loan balance transfer services to people who have already taken out a home loan and started paying prepayments. If your bank or lender’s current interest rate is higher than the interest rate offered by another bank or lender, you can transfer the remaining amount of principal to the other bank or lender to lower the interest rate. However, file transfer fees apply and you must also obtain authorization from your current lender to transfer the remaining balance of the loan to another lender.

5) Make a larger down payment

Most banks and housing finance companies provide home loans for up to 75% to 90% of the total property value, with the remaining 10% to 25% financed out of pocket. If you have extra cash, it’s always better to put in a larger down payment rather than just 10% or 25%. The higher the down payment, the lower the principal loan amount, which directly reduces the overall interest payable to pay off the home loan debt.

6) The bigger the EMI the better

If you have a home loan with a lender that allows you to adjust your payments annually, you should choose a larger EMI if your income increases. Increasing your EMI home loan reduces the term of the loan, and therefore the interest charged on your home loan would be significantly reduced. However, you should check with your lender if such a program is available.

7) A good credit score is your best friend

There is no lender in the market that does not appreciate a good borrower – one who will repay the loan in accordance with all predetermined terms and conditions. A lender can determine a borrower’s creditworthiness by reviewing their credit scores. A good credit rating could open the door to lower interest rates and more favorable loan terms. Lenders such as SBI and Bank of Baroda frequently offer lower interest rates to customers with good credit.

8) Always negotiate

What if you have already applied for a home loan without negotiating? Will you be stuck with a higher interest rate for the rest of the loan term? Nope! It doesn’t have to be, as there are strategies to lower your interest rate.

Last takeaway

It’s not always a tedious job to do things your way. Sometimes there are various paths that you haven’t even explored yet, and when you know they exist, why not take them properly? The same is true if you are trying to get a lower interest rate on your home loan.

Read also : Demand for real estate loans on the rise in the medium and high-end segments

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