6 Proven Ways to Reduce Your Home Loan Interest

For millions of Indians, buying a home is their most cherished dream. If you, too, dream of being a homeowner, you may be working hard to save money for it. However, given the rising inflation and the skyrocketing prices of real estate in India, your lifelong savings may not be enough to complete the purchase transaction. This is where applying for a home loan is the most viable solution. 

Today, many financial organisations in India, including banks and NBFCs (Non-banking Financial Companies), offer a wide range of home loan solutions to suit people's different needs. What’s more, lenders nowadays have a simple online application and approval process, which allows people to have a hassle-free borrowing experience. 

That being said, getting a home loan is a big financial decision that can have a significant impact on your financial standing. So, it is paramount that you have a good understanding of how the home loan works and a well-thought-out strategy in place, or you may end up paying high interest unnecessarily. 

If you are looking for tips on reducing home loan interest, you can come to the right place. In this guide, we give you a few proven ways that can help you reduce the high interest rate burden and enjoy valuable savings. So, without any further ado, let's dive right in. 

 

Choose the loan tenure wisely

The loan tenure or the repayment period is the time over which you will be paying back the amount you borrow. The tenure you choose has a direct impact on the EMI (Equated Monthly Instalment) and affordability. Typically, the longer the tenure you choose, the lower the EMI will be. While you may find it easy to afford the lower monthly payments, you must know that your interest payments will be high. 

So, it is paramount that you assess your financial condition and, based on your other obligations, choose the home loan tenure wisely; the EMI must be affordable, and you must be able to save on your interest payments. 

If you cannot decide on the right tenure, use the home loan EMI calculator to your advantage. It is an easy-to-use tool that lets you know the exact EMI payable for your chosen tenure so you can make an informed decision accordingly. 

 

Choose a floating interest rate

Generally, financial organisations in India offer home loans on either a fixed interest rate or a floating interest rate basis. If you are looking for tips on how to reduce your home loan EMI, it is advisable to take out a loan on a floating interest rate basis. 

In floating interest rate home loans, the interest rates fluctuate based on the market conditions. However, the interest rates are generally a few points lower than fixed rates. This ultimately translates to lower EMI, and the repayment becomes more affordable. Also, you can save significantly on interest payments in the long run. 

 

Maintain a high credit score

Your credit score reflects your creditworthiness and behaviour. Therefore, lenders consider it one of the most critical factors in determining your eligibility and the home loan's interest rate. The higher your credit score and closer to 900, the better your chances of getting the loan approved at a lower interest rate.

You can maintain a high credit score simply by paying all your dues, including credit card bills, on time and in full. Also, make sure not to apply for too many loans simultaneously, and try to pay off all the existing dues before applying for a home loan. 

 

Make a higher down payment

As per the RBI (Reserve Bank of India) guidelines, a financial organisation cannot offer 100% of the property’s value as a home loan but can offer anywhere between 70% and 90%. You must pay the balance amount from your pocket. A down payment is an integral part of the home loan application and approval process. 

When looking for ways to reduce loan interest, you can offer a higher down payment to the lender than the minimum amount required. A higher down payment means you can borrow a lesser amount, and the lender may offer you the loan at the concessional interest rate. A discount of even 0.5% interest rate can translate to valuable savings through the repayment period. 

Also, making a higher down payment shows the lender that you are committed to repaying your home loan, which may help you get the loan approved faster. 

 

Negotiate with the lender

A lot of home loan borrowers don’t realise the importance of negotiating with the lender about the interest rates. Most reputed lenders are open to discussing this with potential borrowers. And, if you have a good credit score and a stable income and have never defaulted on any of your dues, you can use these records to your advantage and get a better interest rate. 

If you have a relationship with the lender, such as using their credit card or maintaining a savings or salary account, you can and must negotiate a better deal with them. 

 

Transfer your home loan

If you feel you have been paying a higher interest even when the market rates are comparatively low, opting for a home loan balance transfer is one of the best ways to reduce your home loan interest. This essentially means transferring your home loan from your existing lender to a new one that offers the loan at a lower interest rate and makes the repayment more affordable. 

However, before you initiate the home loan balance transfer process, do your due diligence and ensure that the charges associated with the transfer are not more than the savings. Also, ensure that the new lender offers the loan with more favourable terms than the earlier lender. 

 

Conclusion

When getting a home loan, the interest rate is a critical factor to consider. You must also look for a lender that offers the loan at the most affordable rate, as it can help you save a lot of money in the long run. Use the above tips to your benefit, and you can reduce your home loan interest rate.