How to Lower Your Home Loan Interest Rates: A Guide
We all love a good deal and if you are looking for housing finance, then getting a lower loan interest is desirable. It is important to learn mortgage basics and work on finding the best option based on your repayment capacity. You also need to work on your financial profile to attract lenders.
When you borrow money, you need to pay it back with interest. Home loans are not different. You should find out how much interest you will end up paying at the end of the full tenure to clearly understand the implication of the rate given. There are instances where the interest charged is almost as much as the principal amount, which may not be desirable.
Lowering interest rates
The thought of paying hefty interest rates charged on the total amount offered can be scary. However, there are ways in which you can save money and pay less. Here are some popular ways of lowering interest charges on home financing:
Choose a shorter tenure
To lower a home loan interest rate, you need to pick a much shorter tenure. A longer tenure means more monthly installments, which leads to a higher interest paid over the loan duration. By picking a lower tenure, you make great savings because the interest payable is reduced significantly. Picking a shorter tenure may lead to an increase in EMI but the total interest paid over this period is lowered even more resulting in huge savings.
Make some prepayments
One of the strategies that come in handy when you want to lower housing finance interest rates is to make some prepayments. In many cases, foreclosure fees and prepayments are not charged by most lenders. This is especially true for floating-rate loans. This makes it possible for borrowers to make some additional payments to lower the principal amount.
When you take a home loan, a big part of the EMI settles the interest while only a small part of the payments repays the principal. When you make your repayments frequently, you end up reducing the principal amount substantially. In the end, you enjoy savings on interest charges.
In some cases, lenders charge a specific percentage when prepayments are made for a fixed-rate loan. It is important to find out if such prepayment charges are applicable before paying. This gives you time to decide whether prepayments are worth it or not.
Compare different providers and the rates offered
Reducing your home rate may be as simple as doing your due diligence through research. Take time to compare different financial institutions and banks and find out more about the rates offered. Rely on third-party websites for true information regarding all the charges to expect from different providers. This gives you a clear picture allowing you to settle for a product that matches your needs. A small interest rate difference can greatly influence your savings.
The home loan balance transfer option
If you are making prepayments on your loan but still feel your lender is charging higher than others are, you can consider transferring the loan to another institution charging a lower rate. This is called home loan balance transfer. Before opting for a transfer, make sure that your payments are up to date to avoid high penalties. Evaluate the charges and all benefits that are associated with the transfer before making up your mind.
Increase the equated monthly installment (EMI)
Increasing the EMI is a great way of reducing home loan tenure. This translates to a lower interest payable. If you get a higher salary in a new job or an increment, you should increase the EMI to match. This way, the principal amount is reduced significantly over time because you end up paying more than the required monthly installments. Doing so lowers the interest payable meaning more savings in the long run.
Improve your credit score
The credit or CIBIL score is normally used by the lender to assess risk. If a customer has a low score, they are presumed to have a higher risk of defaulting. As such, you may need to pay a higher interest rate. This means improving your score may have a significant effect on the interest charged.
It is important to review your credit report before applying for housing finance. Make sure you clear any outstanding balances. If you already have another loan, make timely repayments and clear debts to improve your score. Check your credit report and ccorrect errors since they can affect your credit score. Higher scores are normally associated with lower home loan rates.
Make a large down payment
With a large down payment, you get more equity in the new home right from the onset. This reduces the principal and will translate to a lower interest rate for the duration of the loan. This is because interest is calculated against the principal amount.
Bottom line
With the above information, it is clear that your home loan rate can be lowered significantly. This is only possible by embracing the right strategies and proper financial planning. When you make the right decisions, your interest rates are reduced translating to higher savings on your part. Take time to make loan comparisons before picking the product that suits your needs best.
