How can you get the best home loan interest rates

Securing the best home loan interest rate can save you a significant amount of money over the life of your loan. Finding the right loan at the right rate is really important. Let’s understand some strategic tips to help you get the best home loan interest rates.

1. Choose a Shorter Tenure

As you know, the home loan tenure is quite long and it can be up to 30 years, that's half of the life. So, choosing a shorter loan term can get you a lower interest rate. Lenders see shorter terms as less risky because the loan is paid off faster, which lowers the chance of default.

What are the Benefits of a Shorter Tenure?

• Lower Interest Rates: Shorter loan terms usually have lower interest rates, which means you pay less overall.

• Faster Repayment: You pay off the debt faster, which helps you gain financial freedom sooner.

• Less Interest Paid Over Time: Even though the monthly payments (EMIs) may be higher, you’ll pay much less interest overall.

Here’s the example:

2.Increase the Down Payment

A larger down payment means you need a smaller loan, which lowers the lender’s risk. Lenders are more likely to give better interest rates to borrowers who make bigger down payments. You can make 10-20% or even more based on your financial situation towards the down payment.

Benefits of a Higher Down Payment

• Lower Loan Amount: Reduces the principal amount, resulting in lower interest payments.

• Better Interest Rates: Lenders may offer lower interest rates as the risk is minimized with a higher down payment.

• Improved Loan Approval Chances: A higher down payment reflects your financial stability and commitment, enhancing your approval chances.

3.Increase Your Credit Score

Your credit score affects your loan interest rate. A higher score shows you handle credit well, which lowers the lender’s risk and can get you a lower interest rate. A 750 or above credit score is preferred for home loans.

How to Improve Your Credit Score

• Timely Payments: Pay your credit card bills and EMIs on time to maintain a good payment history.
• Low Credit Utilization: Keep your credit card utilization below 30% of the limit to show you are not overly dependent on credit.
• Clear Outstanding Debts: Pay off any outstanding debts to improve your credit score.
• Avoid Multiple Loan Applications: Multiple loan inquiries can lower your score. Apply for credit only when necessary.

4.Minimize the Debt-to-Income (DTI) Ratio

The Debt-to-Income (DTI) ratio compares your monthly debt payments to your monthly income. A lower DTI ratio means a good balance between debt and income, making you a lower-risk borrower. Msot lenders refer below 35% DTI ratio.

Why Minimize the DTI Ratio?

• Improved Loan Approval Chances: Lenders prefer borrowers with a lower DTI ratio, as it shows financial stability and ability to manage debt.

• Better Interest Rates: A lower DTI ratio can help you secure more favorable interest rates.

How to Minimize Your DTI Ratio

• Pay Off Existing Debts: Clear any outstanding debts to reduce your monthly debt obligations.

• Increase Your Income: Look for ways to boost your income, such as taking on a part-time job or freelancing.

• Avoid New Debt: Limit taking on new debt until your DTI ratio improves.

Example

If your monthly income is ₹60,000 and your total monthly debt payments are ₹20,000, your DTI ratio is 33%. Aim to reduce this ratio to below 30% by paying off some of your debts.

5.Add a Guarantor

A guarantor is someone who agrees to repay the loan if the borrower defaults. The guarantor's credit and financial stability are checked when approving the loan. A guarantor can be anyone like your father, friend, mother, uncle or anyone related to your family.

Benefits of Adding a Guarantor

• Improved Approval Chances: A guarantor with a strong credit profile can enhance your loan approval chances.

• Better Interest Rates: Lenders may offer lower interest rates if the guarantor has a good credit history and financial stability.

• Shared Responsibility: The presence of a guarantor provides additional assurance to the lender.

6.Choose the Right Lender

You know, selecting the right lender is really important for securing favorable loan terms and a smooth application process. Different lenders offer varying interest rates, fees, and customer service quality.

How to Choose the Right Lender?

• Research and Compare: Use online tools to compare loan offers from different lenders by looking at interest rates, fees, and terms.

• Read Reviews: Check customer reviews and ratings to gauge the lender’s reputation and customer service quality.

• Consider Flexibility: Look for lenders offering flexible repayment options, prepayment facilities, and quick disbursal.

• Customer Support: Choose a lender with good customer support to assist you throughout the loan process.

Difficult to choose the right lender? Check and apply Here!

7.Make Prepayments

Home loan prepayment means paying extra money towards your loan principal on top of your regular EMI payments. This reduces the principal amount, which lowers the interest you pay and shortens the loan term.

You can choose if you can go for Part-prepayment or Full-prepayment

• Part-prepayment: Paying a limited amount towards the outstanding principal. So by doing this the principal amount is reduced.

• Full-prepayment: This refers to the total amount to the outstanding principal amount.

What are the Benefits of Making Prepayments?

• Lower Interest Cost: Reduces the principal amount, leading to lower interest payments over the loan tenure.

• Shortened Loan Tenure: Helps in repaying the loan faster, reducing the overall tenure.

• Improved Financial Freedom: Allows you to become debt-free sooner, enhancing your financial stability.

Example

If you receive an annual bonus of ₹1 lakh, use it for prepayment to reduce your principal amount and save on interest costs.

8.Balance Transfer

A balance transfer means moving your home loan to a new lender with a lower interest rate. This can lower your EMI and reduce the interest you pay.

What are the Benefits of a Balance Transfer?

• Lower Interest Rates: New lenders may offer lower interest rates, reducing your overall interest cost.

• Reduced EMIs: Lower interest rates can lead to reduced monthly EMIs, easing your financial burden.

• Improved Loan Terms: Balance transfers can provide an opportunity to renegotiate loan terms, such as tenure and repayment options.

Example

If your current lender offers a home loan at 8% interest and a new lender offers a balance transfer at 7%, transferring the balance can help you save significantly on interest payments.

Summary

Conclusion

To get the best home loan interest rates, plan carefully, manage your finances well, and do thorough research. By using the tips in this blog, you can lower your interest costs and achieve your dream home. Staying proactive and making informed choices are important for getting good loan terms.

How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.

Check the details here at EazyBankLoan

Need help? Reach out at support@eazybankloan.com

Frequently Asked Questions (FAQs)

1. How can I improve my credit score quickly?

• Pay bills on time, reduce credit card balances, avoid new credit applications, and check your credit report for errors.

2. Is it advisable to choose the shortest loan tenure available?

• While shorter tenures offer lower interest rates, ensure the EMIs are manageable within your budget.

3. How much should I aim to save for a down payment?

• Aim for at least 10-20% of the property value as a down payment to secure better interest rates and reduce the loan amount.

4. What documents are needed for a balance transfer?

• Required documents typically include loan statements, property papers, identity proof, and income proof.

5. How often should I make prepayments?

• Make prepayments as often as your financial situation allows, such as using annual bonuses or savings for lump sum payments.