Last Updated on March 22, 2023 by hassan abbas
Taking a home loan is one of the most crucial decisions in life. You must do your homework to zero in on the most suitable deal; else, it might cost you heavily as a mortgage is a long-term loan that extends up to 15-20 years. One of the factors to consider is the rate, and not getting the lowest possible one can be costly. Think about this: even a 0.5% difference in the home loan interest rate (7.5% rather than 7%) for a Rs.50 lakh housing loan can mean a higher EMI of Rs.3.64 lakh for one that has a tenor of 20 years. It is, therefore, important to make sure that you tick the right boxes at the beginning itself. Here are some of the top ways a home loan borrower can secure the lowest home loan interest rate.
Table of Contents
Maintain a Healthy Credit Score
There is a myth that credit score is not as important to a housing loan in India as it is for other unsecured credit options. Indeed, the credit score is not the only home loan eligibility factor lenders check. There are chances that an aspiring borrower with a relatively lower credit
score may also secure a home loan in India. However, when sanctioning home loans for individuals who have a relatively low credit score, the impact is felt on the home loan interest rate. Lenders charge a higher rate than those who do not have a credit score above 750.
Arrange for a Higher Down Payment
Most financial lenders offer the lowest home loan interest rate to borrowers who maintain a low loan to value (LTV) ratio by making higher loan down payments. Therefore, if you are able to make a down payment that exceeds 20-25%, you may be able to secure the lowest rate offered by a home loan lender. So a higher down payment not only helps reduce the EMI by keeping the outstanding home loan amount low, it can fetch you the lowest home loan interest rate.
Go with a Housing Loan Balance Transfer
Most lenders allow the existing borrowers to opt for a balance transfer on home loans. You may transfer the outstanding home loan amount to a new lender who is offering a considerably lower home loan interest rate with the help of a home loan balance transfer. And who knows, you may even end up with the lowest home loan interest rate.
Reduce the Loan Tenor
The tenor of your home loan is one of the crucial factors responsible for how much interest you are going to be charged. It may happen that your estimated EMI outgo is coming down for longer tenors, and you will end up paying more toward the interest. However, if you choose to go for shorter home loan tenors, your EMI could be more, but the overall interest payable will drop drastically. Hence, you must choose the loan tenor before applying for a home loan in India. You can consider using online tools like a housing loan interest calculator or a housing loan EMI calculator to find the loan tenor and estimated EMI that suit your needs.
Look for Better Deals
It’s pretty well-known that lenders prefer borrowers who have a decent credit history as the risk of them defaulting is low. Lenders roll out preferential housing loan interest rates for their existing customers or those having a healthy credit history. So, if your score is closer to 800, you may get better rates on your home loan.
So, if you are a responsible borrower and have made repayments for existing debts on time, chances are you will be offered lower interest rates on your home loan. If not, you can consider negotiating with the concerned lender provided you share a decent business relationship with the chosen lender. Other than that, check out festive offers. Financial lenders often lower their home loan interest rates during the festive months.
Avail of Government Subsidies on Home Loan Interest Rates
In the growth trajectory of the real estate segment observed over the past couple of years, government initiatives like the Pradhan Mantri Awas Yojana (PMAY) and the MahaRERA Act are some of the best catalysts.
PMAY, especially, has made availing of home loans relatively less costly, especially for the MIG and EWS categories. Per the PMAY scheme, applicants can avail of up to 6.50% in interest subsidy on their home loans for tenors that extend up to 20 years. The highest subsidy amount ranges from Rs.2.2 lakh to Rs.2.65 lakh based on the economic category that the home loan applicant belongs.
Consider Home-Saver Loans
If you’re someone with fluctuating income and are looking for flexibility for some months when you’ll have to pay a lower home loan EMI amount, then a home-saver loan can be one of your options for securing the lowest home loan interest rate. These are like overdraft facilities, where the minimum obligation is to pay the monthly interest only.
So temporarily, you can lower your monthly payment to just the home loan interest amount. Once you’re comfortable, you can again pay a higher sum to lower the home loan principal outstanding. However, keep in mind that the home loans come at a higher home loan interest rate, and you’ll end up paying 0.15%–1% higher interest compared to a conventional home loan.
Now that you know how to secure the lowest home loan interest rate, what are you waiting for? Follow our tips and start working on these to prepare for a new life in a home you long wanted to make yours. Read Also: All You Need to Know About Home Loan Tax Benefits in 2022