The purchase of a house is one of the largest financial choices to majority of Indians. And when it comes to the home loan selection a lakh difference in interest rates will save you thousands when the loan term comes up. That is why it is highly important to know the working of home loan interest rates and the way you can pay the lowest EMI.
In this blog we will deconstruct the trends in the most suitable home loan interest rates in India, the criteria that the lenders take into account and clever tips that will enable you to ensure that the minimum possible EMI is charged.
The reason why the interest rates are so important.
A home loan typically lasts between 15 and 30 years, which is why the cost of the loan is highly influenced by the payment of interest.
For example:
Even a 0.50 percent interest rate increment can make your EMI exorbitantly high and total repayment can escalate by 2-4 lakh depending on the principle amount.
That is why a comparison of various lenders and their bargaining of the rate could be significant.
Home Loan Interest Rates.
It is worth knowing the two types of rates before you begin comparing them:
1. Floating Interest Rate
- Bring changes depending on market conditions.
- Can increase or decrease
- Tends to be lower than fixed rates.
- Long-term loans should be recommended.
2. Fixed Interest Rate
- Is not altered during the tenure.
- EMI stays the same
- Applicable in situations where you envisage an increase in the rates.
- Frequently marginally above floating rates.
What Influences the Interest rate on your Home Loan?
Before banks and housing finance companies will give you a rate, they consider a number of factors. These include:
✔ Credit Score
The highest score is 750 and above which will typically assist you to secure the best interest rates.
Lower score = higher interest.
✔ Income & Job Stability
Consistent job particularly in the government or other established companies boosts your score based on trust in lenders.
✔ Age & Loan Tenure
The younger applicants receive more time tenure.
The longer the tenure, the less EMI, however, total interest must be paid.
✔ Loan Amount
Increased loan limits are occasionally charged at a little increased rate because of increased risk.
✔Location of Property and Builder reputation.
Being able to fit in well in major areas, which have had major banks approve their projects is likely to attract better rates.
The best way to secure the lowest home loan interest rate in India.
The following are the cleverest, best tricks to reduce EMI:
1. Maintain a High Credit Score
The first thing that lenders will check is your credit score.
To keep it above 750:
- Pay credit card bills on time
- Cloistered loan EMIs immediately.
- Do not apply too much for loans.
- Lower your debt to equity ratio.
Good score can lower interest rate between 0.25-1%.
2. Compare Rates with a variety of Lenders.
Always say no to the initial proposal.
Check:
- Public sector banks
- Private banks
- Housing finance companies
- Online marketplaces
- Government schemes (PMAY, etc.)
All lenders impose varying internal policies, and hence you can get a variation of 0.50-percent or more in the rates.
3. Choose Floating Rate in case of a fall in rates.
The floating rates are usually down and more receptive.
Majority of the loans in India nowadays are related to the Repo rate- hence should RBI reduce the repo rate, your EMI is automatically reduced.
4. Increase Your Down Payment
The higher the amount paid at the start, the less is borrowed.
This results in:
- Lower EMI
- More opportunities of receiving a discounted rate.
- Lower aggregate interest rate.
Specialists suggest that it would be best to pay 20 to 40 percent in advance.
5. Select a Shorter Tenure (when Affordable).
Less tenure has the advantage of making the EMI higher at the expense of the total interest.
For example:
Over 20 years loan can save you 5-8 lakh of interest.
In case your earnings are predictable, then opt to have a shorter period.
6. Add Co-Applicant to Enhance Profile.
The presence of a co-applicant who has a good income or good credit score would increase the loan eligibility and mitigate the risk to the bank.
This tends to get you a low interest rate.
7. Pay Processing Fees Smartly
At other times banks have been found to charge higher processing fees but lower interest rates. It is more significant to compare the overall cost than on one of the components.
8. Transfer Your Loan when required (Home Loan Balance Transfer)
In case your current lender is paying more interest, it is time to transfer your loan to another bank with a better rate.
This not only will save you a lot of EMI, but also huge sum during the term of the loan.
Final Thoughts
Finding an interest rate that fits a home loan is not only about getting the right bank but also about knowing your financial character and making the right moves to enhance the same. By having a good credit score, proper comparison of lenders and making wise decisions such as floating rates, increasing down payment or decreasing the tenure may make you pay less in EMI and less overall interest.
It is quite easy to make informed decisions when buying a home. You have time, compare, and apply these clever tips before you can get the lowest home loan interest rate and get to have your dream of owning a home yet at a better cost.
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