If you don’t have suitable strategies in mind, home loan EMIs (equated monthly installments) can put a significant strain on your monthly budget. Keep in mind that your loan amount, interest rate, and loan tenure are the critical factors of your monthly installment. You may find yourself paying extra on your loan due to poor preparation.
So, whether you’re thinking about getting a house loan or already have one, keep these five vital tips in mind to lower the amount of interest you’ll have to pay.
Tips for Lowering Home Loan Interest Rates
1. Opt for a shorter term.
As previously stated, one of the key elements influencing the amount of interest you must pay is the term of your loan. Though lengthier tenures, such as 25 to 30 years, decrease the monthly installment amount, shorter tenures, such as 10 to 15 years, help minimize the overall interest due. Using a house loan EMI calculator, you can see for yourself how the interest rate is substantially lowered for loans with shorter terms. So, when you sign up for a loan, carefully consider the duration, so you don’t wind up paying more interest on your loan.
2. Prepayments Are a Good Option Too
If you want to reduce the home loan interest rate, it is good to make extra payments whenever you get some free cash. This can be done by increasing the frequency of your monthly EMI or by paying an additional lump sum at the end of the year. Both these options will help you reduce your interest payable.
You need to be careful when you prepay, however. You should not prepay your loan if it results in you getting a negative cash flow. If you’re trying to prepay, but it’s putting you in the red, don’t do it! You should also check that prepayment penalties aren’t too high so that you can maximize the benefits.
3. Choose a Low-Interest Rate Lender
Of course, choosing the right lender to take your loan from is also very important when you want to reduce your monthly interest outright. You can get an idea of how your interest will go down using a home loan EMI calculator. Also, if you have time, it will be a good idea to check and compare the interest rate quotes that other lenders are offering. Sometimes there are multiple deals or schemes available at the same bank, so before you zero in on any such deal, make sure you get an idea of the current market trends. Moreover, if you have a good credit history, you can also try negotiating a better interest rate from your lender. You may want to do this if you are taking a loan for a considerable amount.
4. Home Loan Balance Transfer Can Be an Alternative
If you have a high-interest home loan, a balance transfer is another option to reduce the interest rate you are paying. Balance transfer happens when you move your existing loan to another institution at a lower interest rate. The new lender’s interest rate will depend on the new loan amount, tenure you choose, and your credit history. While you are moving to a new lender, the loan tenure will also be changed, and you will be required to pay a fee for the balance transfer.
5. Increase Your Downpayment
One of the most straightforward ways to reduce the home loan interest rate is to increase your down payment. Since the home loan interest rate is calculated on the loan amount, the higher your down payment, the smaller your loan amount will be and the lesser your monthly installment will be. So, if you have a higher down payment, you will be able to reduce the loan amount being financed.
Paying off your home loan is the best thing you can do with your money. A few months of sacrifice now will translate into years of financial freedom.
So, with all the information shared above, get started on the right path now. Make a plan for saving up to pay off your home loan faster and stick to it.
If you’re looking for a mortgage lender in Sacramento, you’ve come to the right place. Mortgages and loans can be tricky to navigate for many homeowners, but with the help of Hawkins Home Loans, this process becomes infinitely easier. Contact us today to learn more!