Home loans are a long-term commitment as they run for a long time, sometimes ranging from 25-30 years. Several factors are crucial for the decision regarding a home loan, and interest rate is one of them.
Today home loan interest rate will impact your monthly installment and the overall cost of your loan. Therefore, finding the lowest home loan rates for yourself is a good idea.
Types of Home Loans Interest Rates
Home loans are basically of two types – fixed rates loans and floating-rate loans. In a fixed-rate loan, the interest rates do not vary throughout the loan. On the other hand, a floating-rate loan is linked to an external benchmark and varies with the change in the benchmark rate.
Most financial institutions offer mixed home loan rates where interest rates are fixed only up to a certain tenure. Floating rates apply after that.
What Can You Do To Get Lowest Home Loan Rates?
Many lenders offer home loans, but the rates are beyond your control. So what can you do to find the lowest rates for yourself? Below we discuss a few things you can do to ensure this:
Have A Healthy Credit Score
When lenders sanction a loan, they want to ensure they get the money back regularly. The prospective lenders assess your creditworthiness by looking at your credit score. If you have a healthy credit rating, you can get a quick home loan approval and lower home loan rates.
Lenders prefer applicants with a good CIBIL score for a home loan of above 650 or 700. If you have that, you also have more choices of lenders. You can approach a lender who offers the lowest rates and negotiate a lower interest for yourself.
Paying your EMIs and credit card dues on time and being overly dependent on credit can help you maintain a healthy credit score.
A Bigger Down Payment Helps
The bank finances 75% to 90% of the home value; you pay the remaining part from your savings. This upfront payment is known as the downpayment.
A larger downpayment will reduce the amount you borrow; instead of a loan for 80% of the home value, you could take a loan that is 75% of the home cost. Banks calculate interest on the borrowed amount; a lower loan amount will reduce your overall interest burden monthly and overall too.
Lenders offer lower interest rates if you pay a larger downpayment.
Consider The Prepayment Option
Lenders allow you to prepay large chunks of your loan after a few years of loan initiation. A partial prepayment of your loan, for example, a Rs 10 or 12 lakhs a few years down the line, will reduce your EMI burden and the interest rate.
Before you make a decision, check with your lenders regarding the rules related to the downpayment.
Balance Transfer Can Also Help
You may realize your loan is at a higher rate while another lender offers a home loan at lower interest. In such a scenario, you can transfer your unpaid loan amount to the bank of your choice and save on the interest cost.
Just like how a good CIBIL score for a home loan is essential when availing of a home loan, it is also required for the balance transfer of a home loan so that you get a good interest rate.
Choose Carefully Between Fixed Or Floating Rate
Lenders provide you with a loan at fixed or floating rates. For a fixed-rate loan, the interest remains constant throughout the loan term, while for a floating rate loan, the rates vary as per the base rate set by the Reserve Bank of India.
Today’s home loan interest rates are almost the lowest ever and are expected to rise (the RBI has already announced a hike in the base rate). If you expect the rates to rise, then a fixed-rate loan is a good idea, However, if you feel the rates are going to fall, a floating rate loan can benefit you.
To Sum It Up
Research well before applying for a loan; a well-informed borrower can save a lot of money and hassle. Understand all the aspects well; focus on all terms and conditions related to the loan to get the best deal. Ask them to quote an interest rate based on the above parameters whenever you visit a bank or financial institution. You can then compare the rate with other lenders to find the most affordable loan.