Before applying for a home loan, it is important to make sure that the lender is offering a good deal on the interest rate of the loan. This is because a housing loan interest rate can have quite an impact on the monthly instalments. While just a slight difference in the interest rate might not seem like much, it can be vital in affecting the overall cost of the home loan.
This is why borrowers always try and find the lowest home loan interest rate while negotiating with financial institutions. Now, there are a few ways in which a home loan borrower can save on their interest payments.
Take a look at some of the most effective tips that will help in bringing down the interest payments of a home loan:
- Opt for a short repayment tenure
Most borrowers prefer to choose a long repayment tenure to repay a home loan. This is because with a long repayment tenure, it becomes much easier to pay off the monthly instalments in smaller amounts. However, since the interest of the loan is adding up with each instalment, the borrower actually ends up paying more interest. To reduce the total interest payments towards the loan, it is better to opt for a short repayment tenure.
- Try to make a large down payment
A home loan does not cover the entire cost of a house. Depending on the amount, a home loan can cover about 75%-90% of the property cost. The remaining will have to be covered by the borrower, which is called the down payment. Now, if a borrower chooses to make a higher down payment, the loan amount will reduce. This becomes less of a risk for the lender, which is why they can offer the loan at a reduced home loan interest rate.
- Maintain a decent credit record
Any financial institution will always check the credit record of an applicant before offering them a loan. While applying for a home loan, it is advisable to maintain a credit score of 750 or more. Since lenders prefer borrowers with good credit scores, they can offer home loans with good terms, such as a higher loan amount, flexible repayment tenure, or even a lower interest rate.
- Transfer the home loan to a new lender
It is also possible to have already taken a home loan and then find better plans available. In such cases, one can always go for a home loan balance transfer. One of the most common reasons that borrowers transfer their home loans is because of a lower interest rate being offered by the new lender.
So, keep these in mind to save money on the interest payments of your home loan. Also, before applying for the loan, make sure to consider numerous loan plans to understand which plans are offering a good deal on the interest rate. Borrowers can also make use of a home loan EMI calculator to understand whether the interest rate of the loan is affordable.