4 Top Tips to Decrease Your Home Loan Interest

Posted in Housing Articles By Sajhyadri Chattopadhyay-
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Embarking on the journey to homeownership in India is thrilling, but navigating home loans can feel like trying to make your way through an intricate maze. Imagine if there were secret keys to unlock doors leading to lower interest rates, manageable EMIs, and more! Let's unravel these key tricks of the trade to not just secure a home loan but to do it smartly. 

Tips to Reduce Home Loan Interest Rates

Consider the following tips as the four horsemen who can help you reduce home loan interest rates! 

  • Expert Negotiation and the Power of a Good Credit Score: 

When it comes to securing a lower interest rate, your credit score is the unsung hero. Maintaining an impressive credit score, say 750 and above, can open doors to more favourable rates from lenders. Engage with your lender, share competitive offers, and express your eagerness for a better rate to secure lower interest rates. 

With a credit score on the lower side, lenders might offer a home loan with a higher interest rate, say around 9%. Negotiating better terms becomes challenging, and you may encounter more stringent conditions due to perceived risk. On the flip side, a stellar credit score of 750 or above can be your golden ticket. 

  • Constant Comparison and Refinancing to Keep Up with the Times: 

For a pocket-friendly interest rate, explore multiple lenders and compare interest rates and terms. To find your best offer, browse home loan options on an online financial platform like Bajaj Markets. Remember to keep tabs on market trends and your financial progress. If market rates decrease or your financial situation improves, consider refinancing or transferring your home loan balance. 

Suppose you compare lenders and secure an 8.6% interest rate on a ₹75 Lakh loan. A careful selection from the start sets a solid foundation for manageable EMIs and overall interest savings. Over time, market conditions improve, and your financial health strengthens. With a Home Loan Balance Transfer, you might be able to secure a revised interest rate, say 8.5%, leading to substantial long-term savings. 

  • In-depth Refining with Down Payment and Prepayment Options: 

Embarking on the quest for a lower interest rate involves wielding two powerful tools—down payment and prepayment. Contributing a substantial down payment not only reduces your loan amount but can also potentially unlock a more favourable interest rate. Meanwhile, the strategy of prepayment gives you the flexibility to repay your loan ahead of schedule. 

Suppose you decide to make a 30% down payment on an ₹80 Lakh property. This not only significantly reduces your loan amount but may also position you to negotiate a more favourable interest rate, say around 8.5%. Now, suppose you receive a year-end bonus. You can consider using this amount to make a partial prepayment on your home loan, lowering your outstanding amount and saving big on interest payments. 

Related: What Happens When You are Unable to Pay Your Home Loan

  • Carefully Choosing the Loan Tenure and Rate Type: 

When it comes to interest rates, you must decide on the loan tenure and choose between floating and fixed rates. Opting for a shorter loan tenure may increase your monthly instalments, but it's a strategic move to significantly slash the interest payout. Now, when it comes to deciding the rate type, you can choose between the stability of fixed rates or the flexibility of floating rates, subject to market shifts. 

Look at it like this – Opting for a 15-year tenure on a ₹50 Lakhs home loan may result in a higher EMI, but the interest rate could be a competitive 8.5-9%. This can lead to significant overall interest savings. Similarly, in a scenario where economic uncertainties loom, selecting a fixed interest rate of 8.5% provides peace of mind and financial stability over the loan tenure. 

Other Key Strategies to Reduce Home Loan Interest Rate 

  • Employment Stability and Income: 

Your employment history and income stability influence lenders' confidence in your repayment capability. A borrower with a steady job and consistent income may be eligible for lower interest rates, leading to more affordable EMIs. 

  • Loan-to-Value (LTV) Ratio: 

A lower LTV ratio, representing the percentage of the property's value covered by the loan, may help secure reduced interest rates. For instance, if the property value is ₹80 lakh and the loan amount is ₹60 lakh (LTV ratio of 75%), the borrower may secure a more favourable interest rate. 

  • Debt-to-Income Ratio: 

Lenders examine your Debt-to-Income ratio to judge your ability to manage additional debt. A lower ratio may lead to better terms, while a higher ratio could result in higher interest rates. For example, a borrower with a 30% debt-to-income ratio can secure a home loan at 8%. 

 

As you embark on your homebuying adventure, remember: the journey to reduced home loan interest rates is a treasure hunt with tangible rewards. With these insights, you're not just financing a home; you're orchestrating a financial symphony. Utilise these tips and get a home loan that doesn't break the bank, only on Bajaj Markets! Secure advantageous rates from 8.50% on high loan amounts of up to ₹15 Crores and get ready to own a house on your terms! 

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