How to Reduce Your Home Loan Interest Rates in 2024

BASIC TEAM

6 mins reading

Last updated on 22nd February 2024

Getting a home loan in this day and age is quite simple and hassle-free but repaying it back with interest, month-on-month for a considerable period of time, can sometimes feel as a herculean task. Also, owing to this equated monthly installments (EMIs) obligation, there may be times, when a person is not able to make other necessary purchases or is forced to delay them. Even when someone is good at planning his/her family budget, there may be a situation, where immediate spending is required, especially in cases of medical situation. In those times, the EMIs feel burdensome; however, since it has to be repaid month-on-month, the only respite a loan borrower can get is lower interest rate on their home loans. Therefore, knowing how to reduce home loan interest rates is something that all loan seekers should be aware of.  

Tips for Home Loan Interest Rate Reduction

  1. Short Loan Term
  2. Comparing Interest Rates
  3. Prepayment
  4. Home Loan Balance Transfer
  5. High-value down payment
  6. Higher EMIs
  7. Credit Score
  8. Government Subsidy
  9. Festive Offers

1. Short Loan Term

One of the important factors that determine the interest rate on a home loan is its tenure. On loan tenures of 25 to 30 years, the EMI amounts are on the lower side while the interest rates are higher. On the other hand, when the tenure is in the range of 10 to 15 years, the interest amount automatically comes down and one ends up paying less in the long run. So when one is planning to take a loan, a shorter tenure can to get a home loan interest rate reduction.

2. Comparing Interest Rates

Another thing that may lead one to get a loan with a lower interest rate is comparison. A thorough comparison of different loan offers and interest rates floated by various banks and financial institutions is quite essential. Today, there are a number of third-party websites that can help one to see a clear picture as to which bank or financial institution offers what loans and at what interest rates. Using this comparison, one can select the lender, whose interest rates are the lowest among all.

3. Prepayment

In order to get their home loan interest rate reduced, one should opt for prepayment of their loan amount, especially if it has been taken on floating rates. The reason being during the initial part of the loan prepayment period, most home loan foreclosure charges of the EMIs go towards interest payment. However, this scenario changes a few years later, when the EMI amount goes for repayment of principal amount and less on interest. Therefore, it is advised by most financial experts that time to time prepayments should be made so that remaining principal amount comes down and the interest levied on it is less. For floating interest rates, most banks do not penalize the borrower but in the case of fixed interest rate home loans, banks tend to charge a certain amount.

4. Home Loan Balance Transfer

This option can be used for home loan rate reduction, but this should be the last resort for any borrower. The loan balance transfer option comes into the picture only when one has already started making prepayments against the loan, and there is a feeling that the interest charged by the concerned bank is on the higher side. In that case, one can transfer the remaining principal amount to another bank or financial institution, where the interest rate is lower compared to the existing lender rates. However, it should be noted that during this balance transfer period, if any payments are missed, the penalties are quite high.

5. High Value Down Payment

In case of home loans, banks and financial institutions finance about 75 to 90 percent of the total value of the property while the rest percentage is required to be paid by the borrower up front as down payment. Therefore, many experts suggest that paying more from one’s own pocket for the property means that one has to take up a smaller amount of loan, which means that the interest rate on this smaller amount will be on the lower side.

6. Higher EMIs

There are many lending institutions that allow the borrowers to revise their EMIs, annually. Therefore, if one is able to pay more towards the EMIs as a result of increase in salary, for example, should opt to pay higher value of EMIs so that the loan tenure is reduced by the lender. As the tenure is reduced, the interest rate on the remaining amount will automatically come down.

7. Credit Score

One of the most important ways one can get home loan interest rate reduction India is by maintaining a good credit score. All financial institutions verify credit scores of all loan seekers before approving their loan application. Those with good credit card scores, especially above 750, are preferred by banks and further, these people are offered home loans at better interest rates. Thus, it is important that all loan seekers should go and check their credit scores and improve them, if required, by paying all existing loan amounts or credit card dues on time.

8. Government Subsidy

Those belonging to the Economically Weaker Sections (EWS), Lower Income Group (LIG), Medium Income Group I (MIG I), and Medium Income Group II (MIG II) are eligible to get home loan subsidies under the Pradhan Mantri Awas Yojna (PMAY), both in urban and rural areas. Therefore, anyone belonging to any of these categories can avail subsidy on their home loan interest rate.

9. Festive Offers

In India, especially during the festival season, to attract more customers banks and lending institutions tend to offer festive offers, under which they offer home loans at low interest rates. So if someone is planning to go for a home loan close to a popular festival, then he or she should look out for such offers.

FAQs on How to Reduce Interest Rate on Home Loan

One can get reduced interest rate on home loans in 2023 through the following ways:
•    Short Loan Term
•    Comparing Interest Rates
•    Prepayment
•    Home Loan Balance Transfer
•    High value down payment
•    Higher EMIs
•    Government Subsidy

Those with good credit scores are preferred by banks when it comes to approving loans and also lower interest rates.

In case of floating interest rates, it is not charged by most banks but in case of fixed interest rates, there are some charges involved.

Both have their Pros and Cons, and it is up to the loan seeker to compare both and choose one.

People belonging to EWS, LIG, MIG I and MIG II categories are eligible to get government subsidy on home loans.

Published on 12th August 2023