Home loan interest rates vary depending on factors such as the lender, the loan type, the loan amount, and the borrower’s credit score and financial history. On average, current home loan interest rates in India range from 8.5 per cent to 11 per cent. It is wise to compare rates from multiple lenders to find the most favourable deal.
Listed below are a few tips to reduce the burden of home loan interest rates
#1: Improve your credit score: A higher credit score can lead to a lower interest rate
The interest rates that lenders offer on mortgages are based, in part, on the borrower’s credit score. A higher credit score typically indicates a lower risk of default so lenders may offer a lower interest rate on a home loan to borrowers with higher credit scores. A higher credit score allows the borrower to take out a larger loan amount and pay it off faster than they might if they had a lower credit score.
#2: Opt for a shorter loan term: Shorter home loan tenure usually has lower interest rates
Shorter loan tenure usually has lower interest rates compared to longer mortgage terms. This is because a shorter loan length puts less strain on your monthly budget and means that you pay back less on the remaining balance each month.
#3: Make a larger down payment: A larger down payment can reduce the amount you borrow and, in turn, lower your interest rate
When you apply for a home loan online, plan to make a larger down payment, as it may reduce your total amount of debt and interest. This means you will pay less in interest over time, helping you avoid the stress of paying a large EMI each month. If buyers are willing to make at least a 20 per cent down payment toward the purchase price of their home, financial institutions take them as serious buyers and offer them a lower interest rate.
#4: Choose a fixed-rate loan: A fixed-rate home loan offers a stable interest rate over a floating-rate home loan.
The best way to protect yourself against rising interest rates is to get a fixed-rate home loan. Fixed-rate home loans offer stability and certainty over floating-rate loans. A fixed-rate mortgage has a specific interest rate that does not vary, meaning you always know what your monthly payment will look like for the loan’s term length.
#5: Consider home loan refinancing: Refinancing can lower your home loan interest rate if rates have dropped since you took out your original loan.
Home loan refinancing is an option for many homeowners to reduce their interest rates. The logic behind this is simple: if the current interest rate on your existing home loan has risen since you took it, you may be able to find a lower rate elsewhere. Refinancing your home loan can also enable you to increase the amount of money you can borrow and lower your monthly payments. A lower interest rate may also make it easier to qualify for a new loan if you plan to move, get married, or have another event that may impact your ability to repay a mortgage.
#6: Make extra payments: Paying off your loan faster can reduce the amount of interest you pay over the life of the loan
Making extra principal and interest payments on your home loan frees up more cash to pay other bills. It also makes it easier for your lender to calculate how much you need to pay down or add to your principal each month.
#7: Avoid prepayment penalties on your home loan to reduce your loan liability
Prepayment penalties can be costly and can discourage you from making timely home loan payments. It is imperative to understand how prepayment penalties work and what steps you can take to minimise their impact on your home loan.