When you get your home loan rates set, that’s the number you’re stuck with until your loan is paid off in full, usually around 20-30 years. But that doesn’t mean you can’t work to reduce it, and there are plenty of ways to do so throughout your loan without refinancing or getting another mortgage.
Here are ten easy things to reduce your home loan interest rate and save yourself some money in the long run.
Tip 1: Calculate How Much You Can Save On Interest
Calculate how much you can save on interest by calculating how much a lower rate could cost. To calculate, take your monthly payment and divide it by 12. Then multiply that number by your desired interest rate (e.g., 6%). The result is approximately how much money you’ll be saving each month with a lower interest rate. You can use those numbers to negotiate an even better deal.
Tip 2: Use Your Savings to Build an Emergency Fund
In addition to reducing your home loan interest rate, you can trim a percentage point off your annual mortgage payment by building an emergency fund. When you have enough money to cover six months of living expenses, contact your lender and ask them to lower your monthly payments by that same amount. The savings on both ends will more than makeup for any reduction in principal over time—plus, it gives you some peace of mind about making your mortgage payments when unexpected expenses come up.
Tip 3: Consider Switching Your Loan Type
You may be eligible for a lower home loan interest rate if you have a self-employed, salaried job and meet specific criteria (this varies based on your bank). Sometimes, it can save you nearly 1% of your total interest cost. However, it is possible that even if you are eligible for lower rates on another type of loan, your bank won’t let you switch and will insist that you stay with your current loan type.
Tip 4: Check If You Are Eligible for Lower Rates
The lower your risk profile, the higher your chance of getting a lower interest rate. Banks have different home loan eligibility rules, which may vary from one bank to another. The eligibility criteria can be checked online or through their website before applying for a loan. Some banks only lend money to existing customers, some give loans to customers with good repayment records, and some ask for collateral.
Tip 5: Explore Home Loans with Low Processing Fees
On average, a home loan applicant pays approximately 3-5% of their total home loan amount to various banks as processing fees. You can reduce your cost of a loan by opting for home loans with low processing fees.
Tip 6: Look Into Refinancing Home Loans
You can balance transfer or refinance your existing home loan to avail of a lower interest rate. Various online websites allow you to check for better rates quickly and hassle-free. Some banks provide customized interest rates based on your credit history, so it’s always worth checking out your options.
Tip 7: Lock In Your Home Loan Interest Rate When You Buy a Property
Given that lenders set their interest rates daily, it’s highly likely that property prices will go up over time. If you are planning to buy a property and want great home loan rates against it, don’t hesitate to apply for an interest rate immediately after you have bought your property.
Tip 8: Pay a Larger Down Payment
Generally, the more you pay down upfront, the lower your interest rate will be. This isn’t a hard and fast rule—banks generally have internal cap levels for how much they’ll let you pay upfront—but if you can swing it, you should consider paying as much as possible when applying for a home loan. However, note that if your loan amount is high relative to your income or assets, banks may require an even higher down payment than usual.
Tip 9: Opt for a Shorter Term
Given that interest rates are bound to rise, it’s better to opt for a minor loan tenure and pay off your home loan faster than a long-term structure. Also, if you cannot pay your EMIs on time consecutively for at least two months, check with your bank about rescheduling options and ensure that you don’t fall into arrears. If you do, the chances are that your interest rate will soar sky-high. You can also consider a Grihashakti Housing Loan to get the best interest rates on your home loan.
Tip 10: Consider Prepayments If Possible
Everyone can’t make prepayments. However, if you are one of those lucky ones who can afford a prepayment, it will go a long way in reducing your home loan interest rate. It may even be possible to request your bank for an additional loan to make prepayments on your existing home loan.
The Bottom Line
Before you finalize your loan, exploring your options is a good idea. While one lender may have offered you a competitive interest rate, you might be able to lower that rate with another. You’ll also want to consider any extra costs involved with refinancing—the fee for setting up and maintaining a new home loan is just one example of what you could encounter.
Consider these practical tips, and see if they make sense for you. Knowing precisely what is happening with your finances; managing debt effectively is vital for staying on top!