Applying for a housing loan is a major decision, especially when considering the repayment period that comes with it. Taking a loan for a house involves borrowing a significant amount, and with this large amount comes the housing loan interest rate. For this reason, loanees often feel ‘stuck’, as though a large chunk of their life is dedicated to the repayment of this housing loan interest rate alone. This can brew discontent amongst borrowers. We try to mitigate such a dire feeling from arising by stipulating a few measures you can undertake to reduce your housing loan interest rate.
- Reduce housing loan interest by making prepayments
Most loanees (especially first-time borrowers) assume that they are required to make a loan repayment for a specific interval of time until they fully pay back their loan. However, this is far from true. Repaying your loan early can not only shorten your tenor, but also reduces your housing loan interest rate significantly. Before going ahead and whipping out your home loan calculator to assess how much you can benefit from the reduction in this interest rate, we first recommend that you read the terms and conditions that come with your housing loan. Certain housing loans may not permit you to pay back your loan in advance, or may come with fixed interest rates.Also, if you are finding lower interest rates from some other lender, you can refinace your mortgage. You can seek help from professionals at Altrua Financial for this purpose.
- Reduce housing loan interest by opting for a short tenor
As mentioned above, a shorter tenor can be highly beneficial for you in terms of the housing interest rate you have to pay. Most loanees pick loans that are accompanied by long loan tenors, because of the breakdown of the total loan (including interest) into more affordable EMIs. While this is convenient, a shorter loan tenor means a lower total interest payable amount. For instance, if you were to check an online home loan calculator, you would notice that a loan of Rs. 25,00,000 with a tenor of 28.5 years means you would have to pay a total loan interest amount of Rs. 30,98,273. However, if this same loan were to be accompanied by a tenor of 2 years, your total loan interest amount would only be Rs. 1,78,202.
- Reduce housing loan interest by altering your EMI payout
Revising your EMI half-yearly or annually can result in a reduction in your housing loan interest rate. If you were to check a home loan eligibility calculator, you would notice a separate section dedicated to your income. This is because the loan amount you are granted depends primarily on whether you have the means to pay it back in the future through your income earnings. If you were to get promoted and your income level rises, altering your EMI would be recommended. Paying a larger EMI percentage shortens your loan tenor and reduces your total housing loan interest rate.
- Reduce housing loan interest by ameliorating your credit score
It is important to note that another factor that dictates your loan amount is your credit score. CIBIL score for home loan is important, as they show credit lenders your history with credit and whether you have had any defaults or mishaps with it. It holds the power to ascertain whether a large or small loan amount will be provided to you. Improving your credit score can thus provide you with a higher loan amount, and reduce your housing loan interest rate as lenders will feel a lot more confident that you will repay your loan on time with no obstacles. You can improve your credit score by ensuring that your credit report contains accurate information, and by reducing your credit utilisation ratio (ideally below 30%). Additionally, addressing and closing extant debts can also build a better credit score.
- Reduce housing loan interest by making a higher down payment
A down payment is usually made when you invest in a house, as it acts as a security blanket to the sellers. Making a higher down payment will reduce your housing loan interest rate.
- Reduce housing loan interest by considering the marginal cost of funds-based lending rate (MCLR)
Transitioning from a standard loan setting to this regime provides you with certain benefits that are not easily garnered otherwise. A higher level of transparency is provided to loanees under this regime. The Reserve Bank of India (RBI) heavily endorses this regime shift as well, because borrowers are provided with the better transmission of RBI’s policy rate benefits. This regime also has a bearing on the reduction of your housing loan interest rate.
Conclusion
Above, we have discussed a few tips and tricks to bear in mind when trying to reduce your housing loan interest rate. By making prepayments, abiding by a short loan tenor period, changing your EMI payout value after every fixed period or so, enhancing your credit score, making a higher down payment and shifting to the MCLR regime, you can successfully reduce the interest rate that you pay on your loan amount.
