Home loans provide individuals with home financing solutions for various housing-related needs. This includes purchasing, constructing, or renovating a house. These loans can be availed by pledging collateral with a specific end-use requirement.
When you plan to take a home loan, you must use a home EMI calculator available on the websites of leading financial institutions before you find a loan provider.
Interest rate is a key factor a borrower must consider while taking out a home loan. A low-interest home loan can help borrowers realise their dream of owning a home without putting a load on their EMI.
This article will look at a few ways to get low-interest home loans to buy a new home.
1. Having a solid credit score: A credit score is one of the key parameters a lender considers while evaluating your house loan application. Apart from enhancing your chances of qualifying for a house loan – a high credit score will also provide you access to a loan with a lower interest rate. Generally, a credit score of 750+ is recommended.
Factors like credit utilisation, repayment history, etc., impact your credit score. Regularly paying your credit or loan dues and responsible personal financial practice can improve your credit score.
2. Pay a considerable amount of down payment: Doing so will reduce your credit risk, lowering the interest rate charged on your home loan. Furthermore, since you had already made a substantial down payment. Your interest payable would be considerably lower due to the lesser principal amount.
There is no golden rule for determining a reasonable down payment and loan amount. Ensure you pick a loan amount you can afford to pay, given your income and obligations.
3. Short repayment tenure: Choosing a short tenure can indirectly help lower the interest payment amount. While a long repayment tenure may result in low EMI payments, you will pay a large sum as interest payments. Although availing of a loan for a short term would result in large EMI payments, you will be paying lower interest payments in this case.
You should only go for a short repayment tenure if you can comfortably pay the high EMI amount. If you are not comfortable paying a large EMI amount, select the loan tenure that best suits you.
4. Add a co-applicant: Applying with a co-applicant would lower the risks associated with your home loan application. This would result in an improved probability of your loan approval with a low-interest rate. It is best to apply with a co-applicant with a solid credit score. This is because the lender also considers the co-applicant’s credit score.
5. Making prepayments: This is an indirect way of reducing your interest rate. The EMI you pay consists of two components: interest and principal. Periodical repayments of home loans reduce the principal amount on which your payable interest amount is calculated. This means each subsequent prepayment you make reduces your interest amount payable.
6. Floating interest rates: A floating interest rate, unlike a fixed interest rate, fluctuates depending upon the economic environment. While the markets are down, the interest rates are higher, and vice versa.
So, a borrower will have to pay low-interest amounts during good economic conditions and high-interest payments when the economy shrinks or contracts. Some borrowers prefer a fixed interest rate due to its stable and predictable nature.
7. Revise EMI amount: If you can afford to pay a higher amount of EMI, you should do so. Increasing your EMI amount would shorten your loan tenure and, therefore, your payable interest amount. You should consider this option if you can afford to pay an increased EMI amount.
8. Refinancing home loan: If you believe that the interest rate applicable on your home loan is high and there are better alternative offerings in the market, you can approach your existing lender to negotiate for a better, favourable loan term. If your current lender doesn’t oblige your request, you can approach a new lender with better terms and go for refinancing your home loan.
There are various ways to avail of low interest home loans. Compare the varied interest rates various lenders charge before finalising your loan decision.