A home loan becomes beneficial for an individual when the person is keen to own a house. However, the interest component puts a lot of pressure on an individual if it is not properly planned as the lending rates are usually high. Thus, there are several ways in which a beneficiary can avail a low-interest home loan.
As the name suggests, a home loan is the amount of money an individual borrow from banks or other financial institutions after meeting certain loan eligibility criteria to purchase a residential or commercial property.
6 Useful strategies for a low-interest home loan
Following 6 are the best ways in which a beneficiary can lower the interest on a home loan:
- Choose best interest rate
It is a crucial factor to do proper research for choosing a particular home loan. As interest on the home loan is a key factor, the individual must compare the various interest rates of different lending financial institutions.
Opting for a low-interest home loan helps in timely repayment of due amount while making fewer monthly payments, thereby allowing an individual to become debt-free in a short span.
- Short home loan tenor
A long-term loan will result in paying lower monthly instalments but more interest. However, a short-term loan tenor will help a beneficiary in paying less overall interest, which results in long-term savings.
Having a good CIBIL score for home loan assists in a short-term tenor. Using a home loan EMI calculator guides an individual on the maximum he/she needs to pay every month as Equated Monthly Instalment (EMI).
- Pay more down payment
Paying a significant portion of the amount as a down payment helps an individual get a low interest home loan. Many financial institutions provide reduced interest rates as it lowers their risk because the credit amount is less.
While availing a home loan, a beneficiary must make sure that the down payment is a significant portion of the loan amount. In this case, it will benefit the individual as he/she will opt for a lower loan amount and reduced interest rate.
- Improve credit score
Having a good credit score ensures the financial institution that a beneficiary is trustworthy and will pay the loan amount on time. It gives an individual a chance to negotiate with lending companies to lessen the interest rate on home loans.
- Choose a floating interest rate
A floating rate interest rate depends on markets and other economic factors which is determined by the Reserve Bank of India (RBI). Floating interest rates are generally 1% to 2% less than the fixed interest of the lending companies.
It usually changes and in this case an individual can save a lot as the interest rates come down. However, if the floating rate increases more than the initially decided rate, the beneficiary may also have to pay a higher amount.
- Home loan balance transfer
If a borrower feels that his/her current lender is charging him/her more interest, then the individual has the option of transferring the ongoing loan to another lender. A home loan balance transfer allows a borrower to pay off the amount at more convenient loan terms. A beneficiary, in this case, must keep in mind any additional costs and charges related to balance transfer.
- Go for a pre-approved offer
Many financial organisations provide customised pre-approved loans on various credit products. These offers accelerated the overall loan application procedure. Individuals need to fill in their basic information to learn their pre-approved offers. These offers are often available at reduced interest rates.
As paying off the due amount along with interest is a long-term responsibility, thereby a beneficiary can avail low-interest home loan by the above-mentioned techniques.