As a homebuyer, the interest rate you are charged on your home loan is the deciding factor affecting how easily you can repay the loan. So, it is in your best interest to choose a lender who offers the lowest interest rate right when you’re planning to buy a home. However, if you are an existing borrower, you have the right to transfer your housing loan to another lender offering you a lower home loan interest rate to make repayment more affordable. To know more about the simple steps you can take in order to reduce your home loan interest rate, read on.
For Existing Borrowers
- Check if your home loan interest is based on MCLR or PLR
Before April 2016, lenders offered home loans based on the prime rate or base rate. Home loans offered after this date are based on the marginal cost of funds based lending rate or repo rate. So, these home loans usually feature a lower interest rate. As an existing borrower, check to see on what regime your current housing loan interest rate is based on. If your home loan based on the older regime, switch your home loan to the new rate regime with the same lender or transfer your loan to a new lender.
- Check if a home loan balance transfer is feasible for you
If your existing lender is unable to offer you a lower home loan interest rate, check the market to see if you can find a better rate. If you do, you can transfer your home loan to the new lender. When doing this, make sure you consider the cost of the transfer. Sign up for a transfer only if you see overall savings via this move as there are transfer costs involved.
- Talk to your lender’s representative to negotiate
The third step you can follow when you realize that your home loan interest rate is higher than the current market rate is to talk to your lender. Sometimes, having a conversation with your relationship manager or asking for a loan statement for potentially doing a balance transfer can result in you getting a lower interest rate on your existing loan.
For New Borrowers
- Compare the home loan interest rates charged by different lenders
If you’re on the verge of taking a home loan from your existing bank, take a moment to do a market comparison. See the different home loan interest rates offered by various housing finance companies and choose the lowest one while also picking a lender based on trust and features. This will ensure that you get the lowest home loan interest rate rather than the most convenient one. In order to see the effect of even a small change in the home loan interest rate, use the home loan EMI calculator and see how your EMI differs with different interest rates.
- Ensure you meet the lender’s eligibility criteria and have a good credit score
Finally, to get the lowest interest rate in the market, make sure that your CIBIL score is high (over 700) so that a lender views you as a reliable borrower. Secondly, ensure that you meet the lender’s eligibility criteria based on income and employment so that you are the ideal candidate to receive the best interest rate of your chosen lender.
With these simple steps, you can strive to decrease your home loan interest rate and repay more affordably. However, remember that no matter whether you’re a new borrower or have an existing home loan, you can still enjoy the home loan interest tax benefit when you repay your loan. Under Section 24 of the IT Act, you can claim the total interest paid on your housing loan, up to Rs.2 lakh per year, as a tax deduction. This amount is deducted from your total taxable income. This further makes repayment lighter in the pocket.