A lot of deliberation takes place before one decides to build or buy a home. In such a case, one of the major areas of concern is home loan rates by way of securing funds for this purchase. there are a few things to keep in mind when borrowers seek the lowest rate of interest offered by lending institutions across the country.
Given that the principal amount for a housing loan is much higher than unsecured credits, the repayment amount is likely to cause considerable strain on a borrower’s finances. With a high rate of interest, bearing the designated monthly outgo usually proves to be taxing.
Here are a some tips that would enable you to lower the burden of an interest rate of a home loan –
Refinancing loans at a lower rate of interest is an effective solution to reduce one’s loan burden. Borrowers may keep searching for other lenders who may offer a competitive interest rate, over their existing financial institution.
However, before the borrower opts for refinancing options, charges to switch the loan also have to be considered. Otherwise, such hidden charges on home loan refinancing may outweigh potential benefits.
Converting the Home Loan Interest Rates
Home loans disbursed post-April 2016 have to comply with a marginal cost of funds-based lending rate (MCLR) where borrowers can take advantage of alterations in home loan rates. However, the loans availed before April 2016 can only be converted to MCLR in lieu of conversion fees and the relevant tax obligations.
This conversion fee amounts to a percentage of an outstanding amount home loan amount that has not yet been repaid.
Opt for a Shorter Tenure
The cost of interest becomes less if the loan tenure is kept short, where the repayment is also faster. In this regard, a higher home loan interest rate does not lead to more interest payout.
If an individual opts for a shorter tenure, the interest paid on the borrowed amount is much lesser than that for loans with longer tenures.
Pay more EMI
Financial experts suggest that if a borrower can manage to pay more than the regular monthly instalments, it would ease the loan obligation. That way, the surplus amount would end up not only reducing the outstanding principal but also home loan interest burden. You can get an idea for the same by using a home loan EMI calculator.
One way to go about this is to pay an extra monthly instalment in a given year than the regular EMIs. It helps the borrower to reap twin advantages of reducing the interest cost along with the loan tenure.
Experts further advise borrowers to increase the monthly instalment amount to the tune of approximately 5% each year. Such additional payment goes a long way to reduce the burden of interest repayment.
Choosing Between Floating and Fixed Rate
A fixed interest rate remains the same for the entire span of loan tenure, or a part thereof, according to terms of agreement. On the other hand, floating interest rates are subject to change across the debt obligation duration.
If the current rates are low, borrowers should go for a fixed interest rate. However, if there is a chance of interest rates going down from the existing high rate, it is recommended to avail a floating rate.
One may also search for housing finance companies that provide pre-approved offers which expedite the application process. Such offers are available on financial products like loans against property, home loans, etc. You can also check your pre-approved offer by submitting a few essential details.
Borrowers may consider consulting a financial expert to avail a home loan on best possible terms. For instance, if one prefers to have a shorter term, and interest rates are relatively low, then opting for a fixed rate may be a better option. In any other scenario, the expert may run quick numbers to help lower the home loan rates.