TIPS TO REDUCE HOME LOAN INTEREST RATES

Interest rate plays a crucial role in making your home loan an affordable or expensive deal. Sometimes, the interest rate itself is so high that it exceeds the total principal amount paid over the set tenure.

Owing to that, borrowers look for multiple ways to be able to avail a home loan at the lowest interest rates possible to avoid burdening their pocket.

While there are multiple banking and non-banking financial institutions that offer an array of home loan schemes at affordable rates, it is important for the borrowers to research and shortlist the ones that best suit their requirements and repayment capacity. Because what is affordable for one can be expensive for the other.

To help the home loan applicants fulfil their dreams without any hassle, we have discussed some smart tips that will reduce the interest rates on home loans.

1. Prepayment of Loan Amount

Prepayment can help you pay off your home loan as quickly as possible. While the payment will be subject to the outstanding balance and tenure of the loan, it will still eliminate the need to further pay the interest charges. However, it is advisable to first check the prepayment policy with the lending bank or non-banking financial institution before signing the deal as some may ask you to pay the balance interest charges as well.

Besides, the borrower should think of prepayment in the initial years of the loan tenure instead of the last few. This will ensure that the maximum amount of interest is saved.

Pro tip: Always select lenders with an easy and flexible prepayment policy.

2. Make a Higher Down Payment

Down payment has a major role to play in not only reducing your loan amount but also the interest paid, thereby making it a cheaper deal. Further, higher the down payment, lower the required principal amount and its overall interest payments.

This makes it important for the borrowers to opt for a down payment as some of them prefer converting the entire amount into EMIs, especially in the case of home loans. While this may sound enticing at first, you will be shocked to see the final amount you are paying to the lender in comparison to the actual purchase price.

Pro tip: Lenders offer only 80% to 85% of the total purchase price, thereby encouraging down payments. However, borrowers always have an option to add to it from their end and convert the rest into EMIs.

3. Opt For A Shorter Tenure

Long term commitments sound good but not when talking about loans. A swifter home loan brings great relief in terms of affordability and long term burdens. Hence, always try and select the shortest tenure possible to be able to avail lowest interest rates on home loans.

A shorter home loan tenure may increase the amount paid as monthly instalments but will reduce the interest outgo. And you will always get the flexibility to select EMIs based on your monthly income and expenses so no need to worry about burdening your pocket.

Pro Tip: You can use the EMI calculator on our Muthoot FinCorp website to calculate the lump sum amount that you will have to pay against the selected EMIs and tenure.

4. Home Loan At MCLR Interest Rates

MCLR (Marginal Cost of Fund Based Lending Rate) is the minimum lending rate below which a bank is not permitted to lend. It further determines the rates of interest for various loan schemes. With MCLR, the government aims to ensure that the rate cuts are passed on by the banks to the borrowers, which, in turn, lowers the interest rate.

As per the guideline issued by the RBI (Reserve Bank of India), home loans taken by April 2016 will fall under the MCLR. In case you have taken a home loan before that date, you can choose to opt for MCLR rate benefits that will have a significant impact on your housing loan interest rates. However, the switching may involve some conversion fee and tax hence, estimate the total amount beforehand to ensure affordability and avoid any chaos.

Pro tip: In some cases, the financial institution itself offers low interest rates on housing loans. Do compare and check if the MCLR rate brings a significant difference to your affordability.

5. Transfer the Home Loan Balance

In case the interest rate on a home loan is higher with the existing lender in comparison to what the other banks are offering, you can transfer the home loan balance to the preferred lender. This is considered to be an easy and effective way for the purpose of saving on interest rates. However, prefer doing this in the initial years of the loan tenure to avail maximum benefits.

Apart from the lower interest rates on housing loans, this balance transfer comes with additional benefits of top-up loan and extension in repayment tenure.

Pro Tip: Try and negotiate with the next lender to be able to bag cheaper deals.

Additional Factors That Affect Interest Rates on Home Loans

• A good credit score: Maintaining a good credit score can help borrowers easily get a home loan at a lower rate of interest.

• Women borrowers get cheaper loans: Women borrowers are known to get loan deals with 5 basis point low rates of interest.

• Age and Profession: Lenders prefer salaried employees as they have a stable source of income with a guarantee of repayment.

With these tips in place, you can easily reduce your interest rates on home loans and quickly repay the loan amount without burdening your pocket.