Purchasing a home loan in India is a critical decision. You must be doing your homework to zero in on the best deal; else it may cost you dear as a mortgage is a long-term loan that runs for 15-20 years. One of the factors to consider is the interest rate, and not getting the lowest possible one can be expensive. Sample this: Even a difference of 0.5% in interest rate (8.5% rather than 8%) for an Rs.50 lakh housing loan may result in a higher EMI of Rs.3.64 lakh for a home loan with a tenor of 20 years. Thus, it is important to make sure that you tick the right boxes at the beginning. Here are some smart ways an aspiring home loan borrower can lower the EMI.
Pick the Most Appropriate Property
At times, the home loan interest rate is not the issue, the property is, owing to which the lending institution may not grant the loan. Many lenders have a negative list for the types of properties and localities where they do not offer loans. So, first check with your lender if the chosen property can even be financed before you finalize it. If your property is listed on the negative list, you may either have to approach the next-best lender or alter the property selection in a way that satisfies the conditions of the lowest home loan interest rate lender.
Compare Home Loan Interest Rates, Settle on the Lowest
Many reputed financial lending institutions offer their best home loans interest rates to salaried borrowers and charge a better rate to non-salaried people. Reasonable home loan interest rates are offered to those who have high credit scores. So, it is imperative for borrowers to check the best home loan interest rate they can secure against their credit score and credit report. A female borrower as a loan co-applicant can help lower your home loan interest rate by almost 0.05%. So, if you avail of the housing loan jointly with the spouse you can get an enhanced rate. In other words, the lowest rate is not offered to every aspiring home loan borrower but comes with certain terms and conditions. So, borrowers must shortlist at least five to seven lenders and start checking the terms and conditions to secure the lowest and most lucrative home loans interest rate.
Pick Longer Home Loan Tenor
Another good option is to avail of a home loan with a longer tenor. For instance, if you are availing of an Rs.40 lakh home loan at a 7.5% per annum interest rate with a 20-year tenor, your EMI will come up to Rs.32,224. However, if you go for a 25-year tenor, the EMI drops to Rs.29,560, and in the case of a 30-year tenor, the EMI will come to Rs.27,969. However, the longer the loan tenor, the higher will be the interest payout. So, this should be your last resort. Moreover, the moment you are comfortable with paying a higher EMI amount, you must have your home loans restructured and reduce the tenor, or work toward making partial but heavy prepayments.
Arrange for a Higher Down-payment
Most lenders permit a lucrative and low rate of interest to home loan borrowers who maintain a low loan to value (LTV) ratio by making a significant down-payment. So, if you can start preparing early and can make a down payment over 20-25%, you might get the lowest rate a lender has to offer. So, a higher down payment not simply brings down the EMI by keeping your outstanding amount low, it might also get you a low-interest rate on your home loans.
Try to Benefit from Home-Saver Loans
If your income is fluctuating and you need some flexibility when it comes to your home loans, for some months when you can pay a lower EMI, opt for a home-saver loan. This option is quite similar to overdraft, where the minimum obligation stays to pay the monthly interests only. So temporarily, an individual can reduce monthly payments to the interest amount and whenever you are comfortable, you can start paying higher amounts to bring down the principal loan outstanding. However, remember that the loans come at a high-interest rate, and you are going to end up paying 0.15 to 1% higher interest compared to a regular housing loan in India.
The Final Word
Before you apply for a housing loan and start crunching numbers, you must make sure that your foundations are in a good shape. The emergency corpus must be sufficient to cover expenses for the next year. This must also factor in new EMIs on the housing loan. This will help with a financial cushion in case of loss of income due to a job loss/job change, accident, or even prolonged illness. Such a healthy buffer when paying off home loans has proven to be indispensable.