6 Effective Strategies for Home Loan Interest Rate Reduction

6 Effective Strategies for Reducing Home Loan Interest Rate

Buying a home of one’s own is a dream for many. However, it comes at a significant cost, due to the skyrocketing prices of real estate. A Home Loan can make this dream can come true.

That said, taking a Home Loan is a big decision. Without proper planning and research, you might end up availing a Home Loan at a higher interest rate, which increases your repayment amount substantially. Here are a few strategies that you can use to reduce your Home Loan interest rate.

Strategies to Reduce Home Loan Interest Rate

Here are six simple and proven strategies that can help you save money on your Home Loan.

1. Improve your Credit Score

Your credit score is one of the most important factors that all lenders consider when deciding the interest rate they can offer you. The better your credit score, the lower the interest rate. Thus, it is very important that you maintain a good credit score. You can do this by paying your existing EMIs and bills on time, keeping your credit utilisation ratio low, not applying for too many loans at the same time and not availing too many loans and Credit Cards. Check your credit score online (free of cost) and take necessary measures to improve it.

2. Choose The Right Loan Tenure

The loan tenure is the period of time over which you will pay back your Home Loan. A longer tenure will translate to a lower EMI (Equated Monthly Instalment), but the total interest you will end up paying is likely to be higher. It is important you consider all your financial obligations and choose an ideal repayment tenure for you. You can use our Home Loan EMI Calculator to determine the best tenure for your Home Loan. You can always consider making pre-payments to reduce your loan tenure and save on interest, though this may come with additional charges.

3. Opt for a Floating Interest Rate

Home Loans can be offered either with fixed interest rate or floating interest rate. Fixed interest rates remain constant throughout the loan tenure, while floating interest rates fluctuate as per market conditions. Generally, floating interest rates are lower than fixed rates, which makes them a more cost-effective option in the long run. However, do keep in mind that floating interest rates can fluctuate and you could end up paying more if the rates increase.

4. Negotiate with Your Lender

Many borrowers miss potential savings by not negotiating with their lender to get a better interest rate. You can always negotiate if you have a good credit score, a stable income and a positive repayment history. You can also leverage your relationship with your existing bank (e.g., as a Salary Account holder or holding any other account with the bank for a long time) to negotiate a better deal on your Home Loan.

5. Make a Higher Down Payment

A down payment is the lump sum amount you pay upfront while buying a house. It is that part of the price of the house that you pay from your own savings. The remaining amount is covered by your Home Loan.  Paying a higher down payment means you borrow less money, which obviously results in a lower EMI. A healthy down payment also shows the lender that you are committed to repaying your Home Loan, which makes you a less risky borrower. This results in the lender giving you a lower interest rate. If possible, try to make a higher down payment as it reduces your loan amount as well as interest rate.

6. Transfer your Home Loan

If you have been repaying your Home Loan for a few years and have a good repayment history, you can consider transferring your loan to another lender who offers a lower interest rate. This is known as a Home Loan Balance Transfer and this facility is available with ICICI Bank. However, before you make the switch, please calculate the costs involved in the transfer, such as processing fees and foreclosure charges. Compare the interest rates, loan tenure and other terms and conditions before making a decision.

Conclusion

Getting a lower interest rate on your Home Loan can save you a lot of money over the loan repayment period. By following the six strategies given above, you can lower your Home Loan interest rate and make your loan much more affordable. To sum up, maintain a good credit score, choose the right loan tenure, go for a floating interest rate, negotiate with your lender, make a larger down payment and consider transferring your Home Loan to another lender. You can use our Home Loan EMI Calculator to determine the loan tenure and EMI that suits your finances.