Applying for a home loan is one of the most common ways of getting financial support to buy a house. There are many lenders offering home loans, but many people have second thoughts given their high interest rates. However, you should know that it is not always necessary to take a loan plan that has a high interest rate. It is possible to bring down the home loan interest rate that a lender is offering through many ways.
4 effective ways in which the interest rate of a home loan can be brought down:
- Make a higher down payment for the property
A home loan does not cover 100% of the property price. You would have to cover about 20% to 30% of the principal loan amount, which is called the down payment. Now, many borrowers try to pay the minimum down payment so that their loan could cover the maximum expenses. However, it is advisable to pay a higher down payment, as this would mean borrowing a smaller loan amount. Repaying a smaller amount would not only be easier but also faster and would save interest on a limited tenure.
- Consider different loan plans
Not all loan plans will have the same interest rates. This is why it is so important to consider numerous plans before settling for one. This way you can analyse different plans and understand which one is most suitable. Always use a home loan EMI calculator to know about the monthly instalments of the loan. Even a slight difference in the interest rate can make a significant difference in the overall cost of the loan. Also, do keep in mind to focus on other aspects that increase the total cost of the loan such as the processing fees.
- Keep a good credit record
It is very important to have a good CIBIL record. This is not just for a home loan, but for any loan. Your credit score is always going to be an important factor in the lender’s evaluation process. Not just this, maintaining a good credit record can get lenders to offer a lower housing loan interest rate. This is because applicants with a good record (above 750) are a safer bet for lenders to rely on for timely repayments.
- Clear the loan in a short tenure
This might come across as surprising considering most borrowers prefer going for a long tenure as this makes the EMI payments easier. However, repaying the loan in a long tenure means that the interest is adding up with each instalment. Therefore, repaying the home loan in a short tenure and cutting down the number of monthly instalments will help in cutting down on the home loan rate.
Also, you can avail tax benefits of up to Rs 2 lakh on the interest paid under Section 24(b) of the Income Tax Act of 1961. So, keep these tips in mind to save money on the housing loan interest.