How To Reduce Interest Rate On Home LoansAdy
As banking offers various financing options these days, it has become relatively easy to get a loan against a property. Whether you are buying a newly constructed home or buying an old apartment, you will have plenty of opportunities to get a loan to support your expenses. However, you should look for the criteria that help you to lower the total payable interest to the financer. Still wondering, how can you reduce the interest rate on home loans?
Go through this article, and you will get your answer. This blog focuses on the ways that helps to pay the lower amount of interest rate while purchasing a home.
#1. Bigger Down Payment
When you buy a home, as home loan lenders you are entitled to finance up to 80-90 percent of the property’s value, those who are looking to avail of a home loan are required to contribute a minimum of 10-20 percent as a down payment. But, instead of managing just the minimum down payment, it would be reasonable to present a higher contribution to the down payment.
Moreover, the higher you contribute as down payment, the lower your Loan-To-Value ratio will be. And, the loan amount needed would be, which in turn intensifies your loan eligibility and improves the chances of loan approval. However, while attempting to make a higher down payment, make sure you do not overstretch your finances or hinder the fulfillment of other important goals.
#2. Shorter Loan Duration
Even though a shorter duration increases the EMI amount, it will surely ensure that the principal loan amount is paid off beforehand. Since the interest rates are computed on the principal amount, the return payment of a principal amount in the form of EMI earlier will help in the marginal reduction of absolute interest to be paid.
#3. Pay Extra EMIs
Paying extra EMI (Equated Monthly Installment) is beneficial as you are reducing the principal amount of loan. If you have an opportunity where you can pay an additional monthly installment for loans, go for it. It will help you to pay less interest amount on the loan.
#4. Refinance the Loan
If you think that you have taken a loan at a high-interest rate, you can refinance it at any time. Banks normally offers interest rate based on the Marginal Cost of Funds based Lending Rate regime which varies from lender to lender. In such a situation, you can switch to another lender who is offering better rates.
#5. Make regular prepayments
The EMI for the home loan consists of two components; the interest charged on the borrowed sum and the parts principal. While the first few years of repayment, you pay more towards the levied due and less towards the principal amount. Thus, you should try to make part prepayments if you can by using your work bonus, salary hike, or any other income. Mostly, lenders allow you to prepay your home loan without charging additional fees. This practice will help to reduce the principal amount and. it also reduces the total interest levied on you.
Besides, if you are an existing home loan borrower, and you are looking for lower interest rates to decrease the amount of your EMI payments, then also you can adopt some strategies to lower your home loan EMI and reduce the debt burden. You should consult the other home loan financer and compare the rates, and then select the most suitable one for you.
So, follow the above-mentioned ways which will support you to decrease the interest rates and save your money. Understand the approaches and find the best one for you when you buy a new home and save on costs.
In short, if you strategically analyze the situation, and preplan the loan process, you will get many opportunities to pay lower interest on the principal amount while buying a home. Dealing with a property is a painstaking task. But, executing enough market research will allow you to know about the lenders. Each lender has different rates to offer you. Hence, never apply for a home loan without comparing multiple financers when you decide to buy a home.