When taking any loan to renovate, build, expand or buy a home, interest rates are a critical factor you should consider. Signing up for a low-interest-rate loan saves the cost of borrowing. Remember, the majority of lenders offer loans at varying interest rates.
The financial market is full of lenders today. Some will give you a home loan at lower rates, while others charge slightly higher rates.
However, the rate you pay for a loan depends on multiple factors and is not limited to credit score alone. Here are tips to help you get a housing loan at lower interest rates.
Effective Tips on How to Lower the Cost of a Home Loan
Pay Attention to Credit Score
Do you have a good credit history? Your credit score is good if you’ve paid previous loans without defaulting or delay.
Many financial service providers check your credit score before approving your loan. With a good credit score, you get a chance to negotiate for a low-interest- rate loan. You can access a PNB home loan with a CIBIL score of 611.
If your credit score isn’t impressive, paying the loans due on time raises your score. You can apply for the correction of credit score errors, which also improves your CIBIL score.
Make a Huge Down Payment
You pay interest depending on the amount you borrow. Paying a huge down payment reduces your loan amount, which lowers the interest rates.
Remember, many lenders cater for about 75-90 % of your property cost. You are then expected to pay the remaining amount.
So, instead of paying a small down payment, contribute more as a down payment from your pocket. Your initial pay lowers the amount you borrow, reducing the payable interest.
Make Frequent Prepayments
Are you servicing a loan? You can make prepayments when you get a lump sum. If your business begins booming and you get more cash, take some amount and prepay your loan.
You may also get some bonus if you’re a salaried person, which you can use to prepay your home loan. Prepayments lower your principal amount, reducing the payable interest.
Opt for a Home Loan Balance Transfer
Often, interest on home loan varies depending on the season, economy, and inflation. You may have signed up for a housing loan when the market rates were not competitive.
The best option would be to transfer the loan balance, assuming you find a lender with lower interest rates than you pay currently. You will repay the remaining loan at lower interest rates, saving costs.
Get a Loan with Short-Tenure
Loans with shorter repayment periods come with low-interest- rates since fewer risks are involved. Another benefit of a short-term loan is reduced payable interest. The payable interest is more for loans with the longest tenure.
Many lenders charge higher interest on home loans with maximum repayment due to the risks involved. But remember, a short-term loan requires payment of bigger EMIs, making it unaffordable for applicants with a small income.
Sign up For a Floating Interest Rate Loan
You can get a home loan with fixed or floating interest rates. For fixed-rate loans, the interest doesn’t change from when you begin repaying your loan to the end. That means you pay the same EMI through the entire loan tenure.
On the other hand, floating-rate loans have varying interest rates. When the interest rate rises, you pay more, and when it goes down, you pay reduced interest.
However, at the end of loan repayment, the fixed rate loan will be higher than the floating rate by 1 or 2%. That means you pay less for your loan when you sign up for a floating-rate home loan.
Compare Interest Rates Online and Settle for the Lowest
Avoid being in a hurry to sign up for a home loan with the first lender you get. Spend some time online and research financial service providers available.
Remember, the interest rate on the home loan vary from one lender to another. Some financial institutions charge lesser rates than others. Ensure to settle on a lender charging the least on interest rates.
Conclusion
Saving the cost of borrowing should be a priority when applying for a home loan. You can use the tips above to get a less costly loan to build or buy a home. Besides the interest rates, ensure you check repayment flexibility. A comfortable repayment plan reduces pressure on your budget.
