How to Reduce Home Loan Interest Rate Burden?
How to Reduce Home Loan Interest Rate Burden?
A home loan is a significant commitment that must be met to keep one’s creditworthiness in the financial markets. Home loan debt, on the other hand, can still be reduced. This can be accomplished by taking the steps outlined below:
- Home loans are transferred to lenders with the lowest home loan interest rate.
- Increasing the size of the mortgage EMIs will assist in the early repayment of a home loan.
- Home loan prepayment or partial prepayment will help you save money on interest and reduce your EMI burden.
- Making down payments on a home loan will also ease the pressure, as the principal sum is reduced, and the EMI is reduced.
- Choosing a longer loan term allows for a more even distribution of EMIs. As a result, the monthly EMI pressure on a home loan may be changed.
Top Home Loans at Fixed Rate
- HDFC Bank provides rates ranging from 7.40 percent to 8.20 percent per annum (depending on the loan amount) that are fixed for two years only and then reset.
- The fixed interest rate home loan offered by Axis Bank is 12.00 percent per annum.
Types of Interest Rates
- Fixed interest rates
- Floating interest rates
- Fixed-Rate Home Loan: The loan EMIs remain constant for Fixed-rate home loans, which means that the rate applicable to the applicant at the time of loan disbursal will remain unchanged throughout the loan tenure, even if the interest rate decreases or increases with time. The rates are usually higher for a Fixed-rate home loan.
The advantage of a fixed home loan rate is that you can know explicitly how much EMI you have to pay, and if the lending rates increase your EMIs won’t be affected. However, the disadvantage is that if the lending rates decrease, you won’t be able to avail of its advantages.
Types of Home Loans
Banks and NBFCs in India provide different types of home loan options according to various needs. Here’s a list of the main types of housing loans availing in India:
- New Home Loans: These are offered to customers looking to purchase a new house or property for the first time.
- Home Renovation Loans: Home loans for renovation are offered to borrowers who wish to renovate/extend their existing house.
- Step-up Loans: This is when the borrower is given the liberty to pay a lower EMI amount during the earlier days of repayment which gradually increases as the tenure progresses.
- A bridge Loan is a short-term housing financing that helps the borrowers “bridge” the gap between their existing and new mortgages by allowing them to keep the equity of the current residence as a down payment for buying a new house, waiting for the sale of the old house.
- Interest Saver Loan: This allows the borrower to deposit his excess savings in a current account linked to his home loan account. While calculating the interest component, the bank deducts the balance in the current account from the borrower’s outstanding principal.
- Home Extension Loan: is a loan that can be availed to extend an already existing residential property by adding space or new rooms to it.
- Balance Transfer Home Loan: This can be used to transfer an individual’s home loan from one bank to another, looking for lower interest rates.
- Home Purchase Loans: These are specifically provided to borrowers seeking to purchase a residential house or flat.
- Home Loan for Construction: This is offered to customers who are looking to construct a new house on an existing piece of land.
- Plot Loans: These are loans offered to customers looking to purchase a piece of land or plot for house construction.
- Home Loan Top Up: This is an add-on facility offered by most banks and NBFCs that allows existing customers to borrow a certain amount above and over the already existing home loan.
Some Basic Tips for A Home Loan
- Compare! It is always advisable to compare the lenders and choose the one which can be trusted as well as which can offer you the best deal. This also saves you from fraud. Usually, it is best to borrow from the bank where you already have an account.
- Read! It is necessary to read the documents and deals carefully so that you can know explicitly the terms of the loan. This is something you cannot compromise on as it will save you from future shocks.
- Know your rights! It is always beneficial to know about your rights and benefits that you can use for your benefit while availing of a home loan.
How to Get the Lowest Rate of Interest on Home Loans
Certain tips and tricks can save you from paying heavy amounts on your home loans. Provided you follow these practices you can avail the best interest rates in the market best auto insurance.
- Maintain Excellent CIBIL Score
CIBIL score also known as credit score is an indicator of your creditworthiness. A high credit score reflects responsible credit behavior and vice-versa. It is also important to note that applicants with a lower credit score will pay higher interest on their housing loans. A higher credit score dictates the efficiency with which you have paid off your previous loans. Having a good credit score will allow you to enjoy certain benefits like availing of the lowest interest rates in the market.
- Have a co-applicant
You can get the lowest housing loan interest rate if you apply for a housing loan jointly with your spouse as a primary applicant of your housing loan amount. Also, certain lenders allow a lower interest rate for women. Availing joint home loan will also increase your home loan eligibility that will enable you to have an easy home loan and also enjoy home loan tax benefits.
- Consider Availing Home Loan Balance Transfer
A home loan balance transfer is when a borrower shifts his remaining loan balance to a new bank, due to better interest rates or better repayments tenure structure. You can even opt for a home loan balance transfer if your current bank or financial institution is charging a higher rate of interest. You can switch to another bank, which offers a lower rate of interest. But before making the switch, consider the total cost of the loan transfer.
- Pay off a heavy Home Downpayment
The loan amount is one of the main factors that affect your housing loan interest rate. The higher loan amount usually attracts a higher interest rate and vice-versa. To get a home loan at the lowest possible interest rate, it is advisable to try paying off your loan amount by contributing more towards your home down payment.
Documents Required for Home Loan
- Application Form
- Identity Proof
- Certificate and Proof of Business Existence
- Address Proof
- Income Proof
- Age Proof
- Property Documents
- Affordable car insurance
FAQ’s About Home Loan Interest Rates
How is the Home Loan interest rate calculated?
The interest rate of home loans is directly dependent on the repo rate. After adding a margin on the repo rate RLLR is calculated which is used to calculate the home loan rate.
Effective Interest Rate (EIR) = Base Rate + Markup
The external Benchmark Rate is the minimum rate set by the Reserve Bank of India as lenders cannot sanction loans to customers below this benchmarked rate. It is subject to frequent changes depending on various inputs and conditions.
Markup: A margin is added above the external benchmark rate to get the Effective interest rate (EIR). The markup may vary from one scheme to another.
What is the tenure of a house loan?
Home Loans are quite long tenure loans that can range from a period of 5 years to 30 years depending on the need of the borrower, his age, and his income.
Which is better: fixed or floating rates?
A fixed home loan is a better option as it will secure you from any fluctuations in interest rates in the market. A floating home loan, on the other hand, is a better option when you think that the interest rate will drop in the future. Check the basic differences between both these rates:
Can I reduce my home loan interest rate?
If you have a low CIBIL score then there are chances that your home loan interest rate will be lower. Also, some banks offer discounted rates where a woman is the main applicant.
Can I apply for a housing loan co-jointly?
Yes, you can apply for a home loan jointly with an immediate earning co-applicant. Adding a co-applicant will also increase your eligibility for a better loan interest rate.
Can I avail myself of a balance transfer for a home loan?
Yes, if you are getting a lower rate of interest on a home loan with any other lending institute, then you can easily opt for a balance transfer
Is a top-up facility available on my existing home loan?
Yes, you can avail of the top-up facility on your existing home loan provided that you have made timely repayment of EMIs for the loan tenure so far.
How can I reduce my housing loan EMI burden?
You can easily reduce your home loan EMI burden using the following steps:
Can I switch from a fixed rate to a floating rate during my tenure?
Yes, various banks and NBFCs allow their customers to switch from fixed-rate home loans to floating-rate home loans. Home loan borrowers can make the switch any time during their loan tenure for which they are charged a small fee, which varies from one lender to another.
