Efficient management of your home loan is the
key to your long-term financial stability. While getting a loan is a major step
towards owning a house, many borrowers overlook the impact of interest rates on
their overall repayment burden. Lowering the home loan interest rate can result
in substantial savings over the loan tenure. This article focuses on how you
can lower your home loan interest rate using a practical, effective, and
structured approach.
Ways to Lower Your Home Loan Interest Rate
Let us look at the common methods through
which home loan interest rates can be lowered by
borrowers. Every method needs planning. However, it may result in long-term
cost savings.
Choose a Home Loan
Balance Transfer
Home loan balance transfer helps in shifting
the outstanding loan balance to another lender at a lower rate of interest.
This is useful if the current lender has not revised the rate of interest in
line with the declining market rates.
●
Compare your current outstanding
principal with the new lender's offer.
●
Ensure that the interest savings
outweigh any processing or administrative fees involved.
●
Make sure the remaining loan
tenure is sufficiently long enough to justify the benefits of switching.
Make Regular
Prepayments
Prepayments reduce the principal amount,
thereby directly lowering the interest burden. In addition, even occasional
prepayments can lead to significant savings over the long-term.
●
You can use bonuses or surplus
funds to make partial prepayments.
●
Ask your lender if there are any
prepayment charges or conditions.
When your principal is lower, your interest
outflow reduces, and you may close the loan earlier than expected.
Select a Shorter Loan
Term
Interest rate and loan term are related.
Short-term loans are often offered at lower interest rates compared to
longer-term loans.
●
A shorter tenure increases your
EMI amount but lowers the overall interest paid.
●
Use a home loan EMI calculator to find the EMIs for
various tenures.
This approach is appropriate if your monthly
salary can support higher EMIs without any financial burden.
Improve Your Credit
Score
Lenders prefer to lend funds to borrowers with
strong credit scores. Good credit scores may result in more favourable loan
terms.
●
Check your credit report
periodically to ensure there are no errors.
●
Pay your credit card dues on time
and clear any outstanding EMIs promptly.
●
Do not apply for multiple loans or
credit cards simultaneously.
A credit score above 750 can be leveraged to
negotiate a favourable rate of interest with your existing lender or
prospective lender.
Ask Your Lender for a
Reduction
Sometimes, lenders may not automatically
change the interest rate of your loan, even if you have a floating interest
rate. In such cases, reach out to your lender and ask for a revision.
●
Request your lender to lock your
rate to the prevailing repo rate if not done already.
●
Check whether your lender offers a
conversion option for a nominal fee.
Initiating such a request indicates that you
are aware of market trends and willing to try out other options.
Look Out for Interest
Rate Trends
In case your loan has a floating interest
rate, it would be affected by changes in the policy rate, such as the Reserve
Bank of India's repo rate. Understanding these changes can help you strategise
prepayment or request a change in the interest rate at the appropriate time.
●
Read RBI statements and financial
news reports.
●
Check your loan statements
periodically to see the rate applied.
Understanding rate trends may allow you to
make timely decisions about balance transfers or prepayments.
Things to Take into Consideration Before Reducing Home Loan Interest
Rate
Before you proceed and lower your interest
rate, consider the following:
●
Always weigh any cost of the
change, e.g., conversion or processing fees, against the possible benefit and
potential savings.
●
Review the terms and conditions
with your lender before transferring or making prepayments.
●
Examine your loan contract for
whether fixed terms are included and how they affect interest reduction.
●
Being informed enables you to plan
your finances efficiently and avoid unplanned costs.
Conclusion
Reducing your home loan interest rate is
possible with the right approach. Techniques such as improving your credit
score, prepayments at regular intervals, or switching lenders can ease your
financial stress. Using tools like a home loan EMI calculator may provide you
with an insight into how changes in interest rates affect your monthly budget.
Individuals must understand how using these strategies and decreasing their
loan's interest rate can result in significant savings in the long run. With
disciplined and responsible financial planning, your home loan journey may
become a manageable and well-structured process.