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If you have ever planned to buy a house, you might know that housing loans are an easy alternative to exhausting your savings. Through housing loans, you can comfortably repay through flexible Equated Monthly Installments (EMI). However, you must also know that your home loan interest rate significantly affects your EMIs and total cost of borrowing. As the loan tenure usually spans for decades, even a slight change in the interest rates can add up to a difference of thousands of rupees. Therefore, you must strive to avail a housing loan that has a lower interest rate. Though your home loan interest rates depend significantly on your eligibility and creditworthiness, there are few ways to reduce them.
Given below are few ways to reduce your interest rates:
Your creditworthiness is the first thing that the lender looks at when you apply for a home loan. Lenders check your creditworthiness and repayment capacity through your credit score. If you have a high credit score, the lender is more likely to approve your housing loan and even offer you low home loan interest rates, considering you a responsible borrower. A credit score of 700 and above is an ideal credit score for home loans. The higher your score, the lower could be your interest rates, depending on the other eligibility criteria.
The best way to reduce your home loan interest rate during the tenure is to transfer your loan. If you find another lender offering lower interest rates, you can opt for a balance transfer. However, before transferring your loan, you must ensure a significant difference in the interest rates. It is best to do a cost-benefit analysis before making the switch. You can also negotiate the interest rates with the existing lender before transferring. If you have a good financial history and stable job profile, the lender can restructure the home loans for lower housing loan interest rates.
To reduce your interest payout, opt for a shorter tenure. A short tenure will help you save on interest costs and reduce the total cost of borrowing. You can check the impact of short tenure on your overcall repayment amount with the help of the EMI calculator. However, ensure that the tenure you choose is viable for you and does not put pressure on your finances.
Prepayment is also an easy way to reduce home loan interest. Also, you can pay a higher down payment to reduce your loan amount and thus the interest payout.
Apart from these, you can ask your lender if they can revise your loan EMI. If they do, you can increase your EMI every time you get a bonus or salary hike. Even a minor increase in the EMI payout would reduce your total outstanding amount and thus your interest outgo.
Once you apply for a home loan, your aim should be to pay it off as soon as possible. With judicious repayment strategy, you can reduce your interest outgo and be free from the debt burden.
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