How to Reduce Your Home Loan Interest Rate?

Improper planning can severely affect your monthly budget via equated monthly instalments (EMIs) payable on your home loan. Given below are some methods designed to cause a reduction in your home loan interest rate, avoiding straining your budget:

Opt for a shorter tenure – The tenure of your loan is primarily responsible for the interest paid. Longer tenures of 25-30 years result in lower instalments, but shorter tenures of 10-15 years significantly cut the overall interest. Therefore, before signing up for a loan, it is imperative to choose the tenure carefully to avoid paying high interest.

Comparison of interest rates online – Before deciding on a loan or the tenure, it is necessary to make an online comparison of available home loans. Third-party websites provide all the necessary information for you to compare the different home loans available before taking a decision.

Prepayment – There are no loan foreclosure or prepayment charges on floating rate home loans, so it is wise to make prepayments from time to time. This will lower the principal amount and result in significant reduction in the home loan interest rates.

Transfer of home loan balance – Once you have started making prepayments on your loan, you can consider a balance transfer to another financial institution. This, however, should only be your last option as higher penalties are levied on any missed payments on transfer loans.

Larger down payment – Most institutions finance 75-90% of the loan value while you are required to contribute 10-25% of the remaining. Paying a larger down payment will reduce your loan amount. This in turn will lead to a reduction in interest rates.

Larger EMI – Some lending institutions allow you to revise your instalment on an annual basis. So, if your income has increased and you are now earning more, you can go in for a higher EMI.

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