Are you planning to buy a home but don’t have enough funds to seal the deal? In this case, taking a home loan would be an excellent choice. All you have to do is browse the best home loan offers and pick one of them. Or maybe not! You see, purchasing a housing loan without negotiating the term and the interest rate is not a wise choice. You need to create a proper plan to reduce the amount of interest you pay at the end of the tenure of your mortgage. In this article, we will show you eight ways to reduce the interest rate on your home loan. Let’s dig in.
1) Maintain A Good Credit Score: The credit score shows how responsibly a person handles borrowed money. If you have a credit score over 750 points, it shows the potential lenders that you repay your credits and loans on time. This makes you a reliable borrower in the eyes of the home loan finance company from which you are planning to get the loan. It allows you to borrow money from a bank at a low-interest rate. On the other hand, a low credit score shows that you have missed multiple repayment schedules, making it harder for lenders to trust you. So, make sure you pay EMIs and settle your credit card bills on a timely basis.Once your credit score improves, you can go to your bank and get a home loan at a low-interest rate.
2) Get a Home Loan on Floating Interest Rate: If you get a home purchase loan on floating rates, the interest rate on the loan amount will change throughout the tenure, depending on the change in the market benchmark rate. Because of this, the floating interest rates are often 1-2 percent lower than the fixed interest rates offered by the same bank. That’s why many informed individuals buy a loan on floating interest rates. Because even if the floating interest rates exceed the fixed rates, the changes will only be temporary. This way, borrowers can save more money in the long term.
3) Make a Larger Down Payment:
Do you know how to get a mortgage while paying less money as interest? Simple. Just pay more money as the down payment when you apply for a housing loan. With this, you will borrow less money as the principal loan amount and pay a significantly lower amount of interest on the loan.
4) Make Prepayments on a Regular Basis: You can reduce the interest you pay on the home loan by making prepayments on a regular basis. The EMI you pay every month to the lender is made of two components — the principal amount and the interest your lender charges on the outstanding principle. At the beginning of the loan’s tenure, you pay less towards the principal amount and way more towards the actual interest on your home purchase loan. So, if you receive a salary hike or a bonus, you should use it to make a prepayment on your loan. It will slowly reduce the principal amount as well as the amount you need to pay towards the interest.
5) Shorten the Loan Tenure: Tenure is one of the most important factors that decide how much interest you will be paying towards the loan. Many borrowers often opt for longer tenures to pay less money in EMI. However, as a result, they end up paying more money in interest at the end of their tenure. So, if you want to pay less interest on your home loan, you should go for a loan with a shorter tenure.
6) Revise Your EMI Every Year: The lenders often allow their borrowers to revise the EMI on their loans every year. If your bank offers this feature, you should increase your EMI slightly every time you get a salary hike. As a result, the tenure of the housing loan will decrease, and so is the amount of interest you need to pay towards the loan.
7) Check the Interest Rates Online: Before you get a housing loan, you must check and compare the interest rates offered by every lender. You can go to each lender’s website and browse through the details of the home loan each of them offers.
Even checking out the third-party comparison sites will give you a general idea of the interest rates offered by different financial institutions. By comparing the details, you can pick the best home loan plan that will cater to your financial needs.
8) Start a SIP: Do you want to get a home loan without paying a penny at the end of its tenure? We know it sounds ridiculous, but hear us out! All you have to do is start a SIP (Systematic Investment Plan) in Mutual Funds with a fund equal to 10 to 15 percent of the monthly EMI of your home loan.
Let’s do some math! Let’s say you are purchasing a housing loan of Rs. 30 lakh at a 6.75% interest rate. If your loan has a tenure of 25 years, you would be paying an EMI of Rs. 20,727 every month for 25 years. So, at the end of your loan’s tenure, you would pay Rs. 62,18,204, including the interest to settle the loan agreement.
Now, let’s take a look at the SIP. The amount of money you will be paying every month towards this investment is Rs. 2072, which is 10% of your home loan’s EMI. If you get an average annual return of 15% on your investment, you will get a total of Rs. 68 lakhs in return at the end of 25 years. At the end of the day, you are not paying a single penny towards your home loan at the end of the day. You get an excessive amount of money instead. So, get a mortgage with longer tenure from a home loan finance company or bank, start a SIP, and forget the worries.
Conclusion:
Owning a home is something that everyone dreams of. And a home loan plan with a low-interest rate will allow you to fulfill this dream. There are many ways to score a housing loan while reducing the amount of interest you pay, as we have shown above. Use the tricks we have discussed in this guide, browse through the best home loan offers, and buy one for a low-interest rate.