With the RBI’s recent decision to slash the repo rates by 40 bps, the interest rate on loans and advances is also likely to reduce. For instance, the decision has led to a noticeable decrease in home loan interest rates on new and existing home loans. Consequently, the rate cut has been received positively by home loan borrowers as well.
However, individuals can make the most of this decision and maximise their savings on housing credit by following a few simple yet effective measures.
Tips to follow to save more on a home loan
Here are some practical ways of saving more on a housing loan.
Review Your Credit Report
Credit report proves the most useful information about a loan applicant’s creditworthiness and in turn, comes in handy for financial institutions. For instance, a high CIBIL score reflects a clean credit report and increases an individual’s scope of availing a substantial loan amount at an attractive rate of interest.
This is why applicants must make it a point to review their credit report periodically to eliminate misinformation. It will not only help them to rectify inaccuracies but will also further help them improve the existing CIBIL score on such rectifications.
Choose a Suitable Interest Type
Typically, there are two types of interest rates – fixed and floating. While there are perks of availing a home loan at floating interest rates, it has its share of drawbacks as well. For instance, during the application, the rate of interest under floating rates may be lower than fixed rates. However, such rates are subject to fluctuation; which means there is a significant chance that the floating rate may become higher than fixed rates.
On the other hand, fixed rates remain the same throughout the loan tenor and make it easier for borrowers to plan their payouts. One can use a reliable loan EMI calculator online to understand the impact of interest types for increased savings.
Make a High Down Payment
Though individuals are more inclined to buy a home with a low down payment, they should consider making a higher down payment. Doing so, they will be able to lower their EMI burden significantly and will further be able to reduce the associated home loan interest rate amount quite effectively.
It is because such increased payment gives borrowers an upper-hand when it comes to negotiating a lower loan interest. Also, paying a higher down payment than the usual 15%-20% of the residential property’s value ensures quick approval.
Find out about the Processing Charges
Saving money on home loans does not entirely depend on interest rates. Individuals must also account for additional charges which accompany the credit. They should make it a point to find out about the costs pertaining to – loan processing, foreclosure, prepayment, etc. You can also look for lenders who ensure not to levy any hidden charge on loans.
They also extend pre-approved offers to their customers to make their entire process of availing a loan less cumbersome. Such offers apply to several financial products, like home loans and loans against property. Check your pre-approved offer online in a few steps by just sharing your name and contact details.
Negotiate for a lower rate
Applicants can also opt to negotiate for a lower interest rate with their selected lender. Nonetheless, such negotiation can only work in favour of borrowers if they carry high creditworthiness as well as meet the standards of increased and reliable income.
Balance Transfer Facility
Existing home loan borrowers may also consider a loan balance transfer to save on their EMIs. Nonetheless, such a move will prove to be useful if the home loan interest rate offered by the new lender is lower than the rates they are paying currently. Also, they should make sure to learn everything about home loan balance transfer to benefit from the feature significantly.
Borrowers can further save on their home loan by claiming the tax benefit applicable. For instance, under Section 80C, borrowers claim tax benefit of up to Rs.1.5 lakh on their principal loan value. Likewise, they can claim home loan interest tax benefits of up to Rs.2 lakh annually on interest paid towards the home loan.
Individuals must make sure to go through the terms and conditions associated with each of these tips to make the most of them. Also, they should make sure to compare the prevailing home loan interest rates offered by different lending institutions to pick cost-effective housing finance.