A home loan is a long-term financial liability with a repayment term of up to thirty years. Although a home loan fulfils your most precious dream of owning a house, it comes at a cost. The EMIs can take up a considerable part of your monthly income. However, by planning properly, you can lower the cost of a home loan considerably.
A home loan is a long-term financial liability with a repayment term of up to thirty years. Although a home loan fulfils your most precious dream of owning a house, it comes at a cost. The EMIs can take up a considerable part of your monthly income. However, by planning properly, you can lower the cost of a home loan considerably.
Read this article to discover the top-5 ways to bring down home loan interest rates.
1. Increase Your Loan Eligibility
The best way you can get the lowest home loan interest rates is by increasing your loan eligibility. There are several ways to increase home loan eligibility. The following are a few:
- Improve Your CIBIL Score - A CIBIL score above 800, coupled with decent monthly income, almost always guarantees the best home loan interest rates. Hence, before applying for a home loan, it is wise to open a home loan eligibility calculator and check the lender's requirements. If your CIBIL score is below 800, try to increase the score.
- Include a Co-applicant - Including another applicant to your loan application can increase your loan eligibility. However, before including a co-applicant, ensure that their CIBIL score and monthly income are above the lender-set criteria.
- Maintain a Healthy Savings Account Balance - Sometimes, a healthy savings account balance, which can take care of at least six months' expenses in the case of an income loss, sends a positive signal to the lender. Hence, if your CIBIL score is falling short of the 800-mark, a decent amount in your savings account can come to your rescue.
2. Reduce the Loan Term
Many borrowers often prefer a long-term home loan, as an extended loan term reduces your monthly loan bills. However, when you choose a long term, the lender increases the home loan interest rates. Hence, if you want to save the interest cost, try choosing a short term loan. A short term loan will certainly increase the EMIs a bit, but it will reduce the effective interest rates.
3. Make Prepayments
When you enter your details on a home loan eligibility calculator, it displays the total EMI. During the initial few years of loan repayment, you pay more towards the interest component. Generally, principal repayments kick off in the latter half. If you prepay a part of the principal earlier, your effective home loan interest rates will decrease. Hence, if you want to reduce home loan interest rates, a better option is to prepay a part of the principal as often as you can.
4. Transfer Your Home Loan Balance to a Different Lender
Sometimes, opting for a balance transfer can be the easiest way to reduce home loan interest rates. However, before opting for a balance transfer, check whether the closing costs and loan application fees are low enough to justify the balance transfer. There are times when, despite a reduction in home loan interest rates, the borrower does not save much, due to high loan processing fees. Hence, it is wise to check the costs before applying for the home loan balance transfer.
Conclusion
While all the tips mentioned above can help you lower the home loan interest rates after you have availed the loan, you can also decrease the EMIs by making a higher downpayment.
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