The interest rate charged on a home loan is a crucial factor determining the overall cost of borrowing. There are various parameters, such as your monthly income, repayment capacity, existing debts, employment stability, etc., that impact the home loan interest rate. With leading lenders, you can avail of a housing loan at a competitive interest rate. Furthermore, there are additional measures that you can take to reduce the housing loan interest rate.
Some of them are mentioned below:
Boost your credit score
Your credit score determines your creditworthiness and repayment capacity. Thus, before applying for a loan, you must take proactive measures to enhance your credit score. With a high credit score of 750 or above, you will be able to avail of a higher loan amount at a competitive rate. You can improve your credit score gradually by clearing outstanding dues and decreasing your credit utilization ratio.
Make a prepayment of your home loan.
If you have already availed of a home loan, you can consider making a partial prepayment. This will bring down the outstanding loan amount and help you close the loan sooner. By paying off your loan earlier than the specified duration, you can save on the total interest outgo and reduce the overall loan cost. However, before opting for loan prepayment, make sure that you learn about the prepayment clauses and charges set by the lender.
Opt for a balance transfer
A home loan balance transfer allows borrowers to transfer their loan from their existing lender to a new one that offers a better rate and favorable terms. Before you switch the lender, make a note of the balance transfer charges. Also, if you have completed a major portion of your loan tenure, it wouldn’t be prudent to opt for a balance transfer. This is because the charges associated with the balance transfer can offset the amount saved on the interest outgo.
Make a higher down payment.
Most lenders finance up to 70%-80% of the total value of the property through a housing loan. You are required to pay the remaining 20%-25% amount in the form of a down payment. However, it’s better to make a higher down payment. A larger down payment would translate to a lower home loan amount, directly reducing the interest payable.
Opt for a shorter tenure
Although you can avail of a home loan for a repayment tenure of up to 20 years, it’s advisable to keep the loan term as short as possible. If your repayment capacity permits, it’s advisable to increase your monthly installments and reduce your loan tenure. The shorter the loan tenure, the lower will be the total interest outgo on your loan.
With the help of the above-mentioned measures, you can save on the loan interest easily. Moreover, you can use a home loan interest calculator as it shows the interest amount due on your loan. Additionally, it also shows the payment schedule and the total payment break-up of a housing loan.