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How to reduce home loan interest rate?

Acquiring a home is a major life goal for many, and a home loan is often a necessary tool to achieve this dream. However, these loans’ equal monthly installments (EMIs) can strain your monthly budget without proper planning. Key factors such as interest rate, loan amount and tenure significantly affect your monthly installments. To ease the burden, consider home loan interest rate reduction strategies both before and after securing the loan. This not only facilitates faster repayment but also increases efficiency.

Here are some valuable tips to help you lower your home loan interest rate.

Opt for short-term

The tenure of your loan plays an important role in determining the interest you will be liable to pay. While opting for longer tenures like 25-30 years, your monthly installments can be lower, shorter tenures like 10-15 years can significantly reduce the overall interest payable. Using a home loan EMI calculator allows you to see how the interest decreases over a shorter loan tenure. Therefore, choosing the term carefully before committing to a loan is crucial, ensuring that you don’t end up paying higher interest rates throughout your loan.

Boost your credit score

Your credit score stands as an important determinant for lenders in setting the applicable interest rate for your home loan. A higher credit score translates into a lower interest rate, underscoring the importance of maintaining a positive credit history. Maintain a good credit score by making sure to pay bills on time, maintain a low credit utilization ratio, avoid applying for multiple loans at once, and refrain from opening additional credit accounts. These practices contribute to a favorable credit profile, increasing your chances of securing a home loan at a more favorable interest rate.

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Prepay regularly

If you’re committed to a loan, consider making periodic prepayments. During the initial loan years, a significant portion of your payments cover interest rather than principal. Regular prepayments will significantly reduce the principal, thereby reducing overall interest. Note that lenders typically charge a percentage on prepayments for fixed-rate loans. It is advisable to consult your bank or lender to confirm prepayment charges that may apply.

Make a higher down payment

A down payment is a single, upfront payment made when taking out a loan. Its significance lies in influencing the rate of interest applicable on the remaining amount. A larger down payment translates to a lower amount borrowed, resulting in lower interest rates and EMIs. A substantial down payment also indicates to the lender your commitment to repaying the home loan, portraying you as a low-risk borrower. If possible, aim for a larger down payment to lower your home loan interest rate.

Bulk up your EMIs

Some lenders offer the flexibility to revise your installments annually. If you have changed jobs and now earn a higher salary, opting for an enhanced EMI can help shorten the tenure. A reduced term corresponds to a significant reduction in the overall interest paid on your loan. Verify with your lender whether such options are available.

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