Almost each one of us desires to own a home one day. However, the primary obstacle to realising this dream is the complexities of acquiring sufficient funds to buy the desired property. One effective solution to this problem is to obtain a home loan from a reputable bank or financial institution.
However, interest rates on home loans these days are extremely high, which can often discourage people from considering this option. In most cases, the interest amount is at par or even greater than the original loan amount. Fortunately, it is possible to reduce home loan rates to make the debt more affordable and manageable. Today, we discuss how lower home loan rates can prove to be a boon for you and the ways in which you can attain it:
Benefits Of Lower Home Loan Rates
Paying a lower interest on home loans is quite beneficial for prospective home buyers in the following ways:
- It enables better management of funds and helps avoid the risk of facing financial issues in the long run.
- Lower interest rates also reduce the total amount of monthly payments, which in turn makes buying a house more affordable.
- Home buyers do not need to worry about increasing their income or changing their lifestyle to ensure that they can pay high-interest rates.
- Most importantly, lower interest rates mean greater savings for people, which they then can put to various other uses as per their needs.
Tips For Reducing Home Loan Interest Rates
As mentioned before, people can reduce the interest rates on their home loans. Given below are some useful tips that can prove helpful in this context.
Compare Interest Rates Offered By Various Banks
Home loan applicants should compare the interest rates offered by different banks and financial institutions before finalising one. The important thing to remember is that even a minor difference in interest rates can make a big impact. This is because most home loans have a long payment tenure, and a minor difference can accumulate significantly over the years. However, it is equally important to ensure that the banks offering a lower interest rate do not have any specific conditions or hidden costs associated with the home loan.
Consider Paying A Bigger Down Payment
The down payment is the initial amount that people intending to buy a property are expected to pay. In general, people pay anywhere between 10% and 15% of the total value of the property as a down payment. Banks or financial institutions generally pay the balance amount from where the buyers avail of the home loan. Paying a bigger down payment helps reduce the overall loan amount, which naturally reduces the interest rate that the buyers have to pay.
Maintain A High Credit Score
Many banks and financial institutions tend to consider the applicant’s credit score as a deciding factor for applicable interest rates. This is because a high credit score indicates the reliability of the loan applicants in managing and paying back the loan amount. Even when people have never availed of a loan previously, they can maintain a high credit score by simply paying their bills on time, maintaining a fair credit-to-expense ratio, and even automating their regular payments.
Opt For A Shorter Repayment Tenure
The repayment tenure of home loans often spans years or decades, depending on the actual loan amount. Most applicants tend to overlook the fact that the longer the repayment tenure, the higher the interest amount they pay on the loan. Thus opting for a shorter tenure helps to reduce the interest amount and rate naturally. However, a shorter tenure would also cause a significant increase in the EMI amount. Hence, loan applicants should carefully consider all options before reducing their repayment tenure.
Go With The Option of a Floating Interest Rate
A floating interest rate is different from a fixed interest rate as it changes with rises and falls in the market and other established interest rates. In most cases, the floating interest rate is generally 1 or 2% lesser than fixed rates as it depends directly on market changes. While the risk of floating interest rates exceeding fixed rates is always there, the situation is often temporary and impacts only a short period of the loan tenure. That is why most home loan applicants find this option quite appealing, as it enables them to save more.
Refinance The Home Loan
In recent years refinancing a home loan has emerged as an effective way to reduce interest rates. Refinancing means transferring the loan to another bank or financial institution which is willing to offer a lower rate to gain a client. The growing competition between financial institutions and the easy availability of home loans has made refinancing a popular choice. However, the applicants should check the terms and conditions the new lender offers carefully before transferring the loan.
Conclusion
Home loans have become an integral part of the home-buying process, and the above tips can help in reducing interest rates significantly for efficient management.
