A Complete Guide to Securing a Better Interest on Home Loans
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Purchasing or constructing a new flat or house is a lifetime wish for many; however, finance becomes an important constraint. Home loans can be one of the ways for them to materialise their dream. Borrowers can get sufficient funds through this option to spend adequately in their much-aspired construction project.

If you are also in need of a home loan, you need to ensure that you are getting the credit at the market-best interest rate. Else, it may be a stressful affair for you to repay your obligation later on. 

Ways to Get Low Interest Rates on Home Loans 

Here are some most useful ways that will help you secure a lower interest rate on your home loan:

Compare Interest Rates of Different Lenders

While applying for a home loan, the first thing you should ideally do is proper market research. There are a large number of lending institutions offering home loans at different interest rates. By browsing through them all, you will be able to compare which lender offers their products at the most profitable interest rate. You can shortlist them accordingly.

Look for Home Loan Schemes

There are some lending institutions that offer different home loan schemes or products tailored for people from different walks of life. The interest rate can vary as per the schemes. By going through all of them, you will know whether you are eligible for a scheme that offers the lowest interest rate on home loans.

For example, Union Bank Home Loan interest is different across their different schemes. If you are eligible for the scheme titled ‘Union Smart Save’, you will be able to get a much lower borrowing rate that starts from 7.25% per annum.

Go for a Shorter Repayment Period

Every loan is a sort of risk that lending institutions have to take for making their business thrive, whereas the interest earned on it is their reward. When you choose a shorter tenure, the lending institutions get their loan balance and the interest earned on it quickly. Therefore, they have to take the risk for a shorter duration. For this reason, a shorter repayment period puts you in a favourable position, helping you to negotiate for a reduced interest rate. 

In this regard, you also need to know that with a lower tenure, your instalment amount becomes higher, which can make your repayment financially challenging. You can use the PNB Home Loan EMI Calculator to understand the impact of your chosen tenure on the instalment amount. This calculator will also help you know the total payable interest on your loan and get its repayment schedule.

Meet the Lender’s Eligibility Parameter

Lending institutions come with an eligibility parameter that you should ideally meet to qualify for the loan. If you meet the parameter just by a very low margin, the lender may not allow you to negotiate for reducing the interest rate. You should, therefore, ensure that you meet the parameters like credit score, income, and age properly before choosing a lender accordingly.

Transfer Outstanding Home Loan Balance

A home loan balance transfer lets borrowers transfer their loan balance from their current lender to another financial institution to enjoy attractive offers like reduced interest rates and top-up credit. If you see that your present lender is charging a higher interest rate than the new financial institution, you can choose this financial facility. This way, you will secure the better rate offered by the other financial institution.  

Make a Larger Down Payment

In a home loan, the loan-to-value (LTV) ratio stays around 75% to 90%, depending on the amount you borrow. It states how much of the down payment or out-of-pocket expense you will have to bear.

If an LTV is 80%, you will get a maximum of Rs. 16 Lakhs of credit for constructing a house for which the budget is Rs. 20 Lakhs. You will need to invest the remaining 20% of the budget from your pocket. 

When your share in the construction of your house is large, lenders get confidence that you will not default. Due to this reduced risk, they can agree to offer a discount on the home loan interest rate on your request.

However, it will financially benefit you more, if you can secure a higher LTV as well. For this purpose, you can take credit assistance from Union Bank. This is because, in addition to a lower Union Bank Home Loan Interest rate as mentioned earlier, you can secure a home loan with up to a 90% LTV ratio. For this, however, your borrowing amount will have to be a maximum of up to Rs. 30 Lakh. If it is more than Rs. 30 Lakhs, the LTV ratio will be up to 80%.

Get Home Loan on a Floating Interest Rate

Lending institutions extend home loans at two different types of interest rates. These are fixed and floating interest rates. As the name suggests, the interest rate remains unaltered till the end of loan tenure in a fixed-rate home loan. In a floating-rate home loan, the borrowing rate keeps fluctuating with the changes in the lending institutions’ base rates, making it a riskier option. However, this floating-rate home loan generally comes at around a 2% lower rate than its counterpart. 

Although the final decision of determining the home loan interest rate is the onus of the lending institution itself, you should make all efforts to reduce it if possible. A reduction of merely 0.5% can help you significantly decrease your instalment amount and the total outgoing interest. Resultantly, the loan repayment can be less burdensome for you.

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