Here are 7 Tips for Lowering Your Home Loan Interest Rate

In our country, owning a house is an aspiration for many. However, purchasing a home requires a considerable amount of funds. A combination of savings and a home loan go into buying a house. These days, many lending institutions provide home loans at competitive interest rates. These loans make a home purchase an achievable dream for those with a regular income and moderate financial obligations.

When an individual applies for a home loan, their interest rate depends on several factors by which they can reduce interest rates on home loans, including their credit score, income, DTI ratio, etc.

Here are eight crucial tips on how to reduce interest rates on home loans:

1. Compare Lending institutions

 Research thoroughly and compare different lending institutions’ rates before finalizing a deal. One may visit the websites of several lending institutions and check eligibility to get their loan offers. Find what interest rates they offer on home loans, compare, and finalize a lending institution with the best offer.

2. Make a Higher Down Payment

Lenders do not fund 100% of the home purchase. They provide upto a maximum of 90% of the property’s value as a home loan, and the borrower pays the remaining amount as a down payment. Those who spend a higher down payment from their pocket have better chances of getting a lower interest rate on the home loan. Paying more as a down payment also saves the individual from borrowing a high amount, relieving them from the additional financial burden of repayment. 

3. Reduce Debt-to-Income Ratio

Paying off existing loan EMIs and credit card bills would help reduce the debt-to-income ratio. A lower DTI ratio means fewer financial obligations for the borrower, eventually assigning a more significant sum for home loan EMIs. An individual with a low DTI ratio can adjust loan EMIs into their monthly budget even during a financial crunch. It improves their chances of getting the best home loan rates.

4. Select the Shortest Possible Loan Tenure

Most lenders allow borrowers to select their loan tenure with EMIs suitable to their repayment capacity. Choosing a longer term may reduce the EMI amount but increase the total loan cost and interest. Therefore, selecting the shortest possible loan tenure with easily manageable EMIs is advisable to save money.

5. Consider Pre-Payment When Possible

Most borrowers with a fixed job and stable income get an annual salary hike. One may also consider pre-paying when one gets a bonus, investment return, gift, or promotion during the loan term. Therefore, there are chances that with the improving financial condition, the borrower can adjust pre-payments whenever possible. Paying an additional EMI each year will reduce the loan’s outstanding balance and pay off the loan earlier.

6. Revise EMI Plan Annually

As the borrower’s income increases, they may consider revising their EMI plan annually. They may increase the EMI amount once a year to reduce the outstanding balance and pay off the loan faster. Paying the loan before the loan term will save money on the interest outgo, even if that means a small percentage of pre-payment charges.

7. Consider Loan Refinancing

Refinancing the remaining loan balance is another way to get the best home loan rates. If the borrower’s financial condition has improved and they have increased their credit score, they do not need to continue with the high-interest rate they had to pay at the loan application. They may find a lending institution offering a lower interest rate and refinance their loan with the new lending institutions. Everyone wants to own their dream home, and for that, many people take home loans. However, the interest rate may cause borrowers to pay much more than their home’s actual cost. So, use the tips mentioned above on how to reduce interest rates on home loans and remove the loan burden to save money.