Home loan interest rates are one of the most important factors that affect your monthly repayments and the total cost of borrowing. A lower interest rate can save you thousands over the life of the loan and make your home ownership dream more affordable. But how can you reduce home loan interest rate and get the best deal possible?
There are multiple home loan tips & tricks that will help you in that endeavour, thus ensuring that you have the most economical way of paying off your home loan over its tenure.
Each of these tricks directly impacts the many factors that influence home loan interest rates.
Here are seven tips that can help you achieve that goal.
1. Compare different lenders and loan products
The first step to finding a lower interest rate is to shop around and compare different lenders and loan products. Different lenders may offer different interest rates, fees, features and benefits for the same type of loan. You can use online tools such as comparison websites, calculators and home loan guides to help you compare different options and find the one that suits your needs and budget.
2. Negotiate with your lender
If you have found a loan product that you like, but you think the interest rate is too high, you can try to negotiate with your lender and ask for a lower rate. You can use your credit score, income, savings, equity, loyalty and other factors as leverage to convince your lender that you are a low-risk borrower who deserves a better deal. You can also use other lenders' offers as a benchmark to negotiate with your current lender.
3. Choose a shorter loan term
Another way to reduce your home loan interest rate is to choose a shorter loan term. A shorter loan term means that you will pay off your loan faster and pay less interest over the life of the loan. However, a shorter loan term also means that your monthly repayments will be higher, so you need to make sure that you can afford them and that they fit your budget.
4. Invest in making more repayments
Through repayments on your home loan, you can reduce your interest rate in two ways. First, it can reduce your principal balance faster, which means that you will pay less interest on the remaining amount. Second, it can help you build equity in your home faster, which means that you may then refinance your loan at a lower interest rate in the future.
5. Utilise an offset account or a redraw facility
Want to reduce your home loan interest rate by using your savings or extra repayments to offset your loan balance? This is where an offset account or a redraw facility comes into play. Simply put, an offset account is another bank account that is linked to your home loan account. The balance in the offset account reduces the amount of interest you pay on your home loan. So, suppose you have a 30 lakh home loan and 50,000 in an offset account. In that case, you will only pay interest on 2.5 lakh. A redraw facility allows you to withdraw any extra repayments that you have made on your home loan without penalty. This can help you access cash when you need it and also reduce your interest rate by lowering your principal balance.
6. Switch to a floating rate or a split rate
If you have a fixed-rate home loan, you could reduce your interest rate by switching to a floating rate or a split rate. A floating-rate home loan has an interest rate that changes according to the market conditions and the lender's discretion. This means that you may benefit from lower interest rates when they drop, but you also need to be prepared for higher rates when they rise. Another option is split home loan interest rates. As the name suggests, they split your interest into a fixed and a floating portion. This can help you enjoy the best of both worlds: the stability of a fixed rate and the flexibility of a variable rate.
7. Refinance your home loan
The last tip to reduce your home loan interest rate is to refinance your home loan with another lender or another loan product that offers a lower interest rate. Refinancing can help you save money on interest, fees and charges, as well as access better features and benefits for your home loan. However, refinancing also involves costs such as exit fees, application fees, valuation fees and stamp duty, so you need to weigh the pros and cons carefully before making a decision.
Final Thoughts
Of course, you can pick and choose which of the above home loan tips & tricks you want to follow to get an interest rate closer to your desired number. Ultimately, your effort is bound to pay off in the long run. Remember, a lower home loan interest is always in your interest!
