Acquiring a home loan is a demanding process, especially when you do not know all the factors that go into deciding what is the best interest rate for you.
If you choose a lower home loan interest rate scheme, you will save money on interest. Therefore, before deciding on a home loan, it is necessary to speak with several lenders and compare interest rates from various banks.
The amount of loan you are eligible for is determined by varying criteria, including your present wage and income. You should also acquire a handle on other details, such as the price of the home you’re considering purchasing, etc.
Current Market Situation
Owing to the Coronavirus outbreak, Indian banks have decided to now lower house loan interest rates to a 15-year low to increase consumer confidence at a time when the economy is suffering and property purchasers are wary of job security issues.
The timing is, therefore, right for those who wish to borrow from banks because the repo rate is at its lowest level in the last two decades. People who wish to borrow money from the bank will be able to do so at a cheaper interest rate as a result of this. This also implies that equated monthly instalments on loans, which are linked to the Marginal Cost of Funds based Lending Rate (MCLR) or external benchmark-linked rates, will remain unchanged.
This comes off as great news to people doubtful of the home loan process to now start looking for a home loan online.
Benefits of Low-Interest Rate
- Saves you a significant amount of money: If you’ve been a loyal customer of a specific bank for a long time, your bank will be willing to offer you a loan with a reduced interest rate. As a result, performing some preliminary research won’t certainly go to waste. This will enable you to save a significant amount of money on a home loan.
- Lower EMIs: A lower interest rate equals cheaper EMIs and reduced interest payment throughout the loan. The EMI, or equated monthly instalments, is computed using three important parameters: the loan amount, the interest rate, and the loan term. To calculate your loan EMI, you’ll need all three pieces of information. So, if you take a home loan of Rs.20 lakh for a 5-year term at 10% interest, your EMI will be Rs.42,494. On the other hand, if the same 5-year loan is taken at an 8.50% interest rate, your home loan EMI will be Rs.41,033. You can also utilise home loan EMI calculators available online.
Interest on a Home Loan Can Be Calculated in Two Ways
- Flat Rate: Interest is calculated on the whole loan amount initially borrowed over the entire loan term using the flat rate technique of interest calculation.
- Balance Reduction Method: Parts of the loan amount and the interest component are paid off as you pay off your monthly EMIs. Interest is calculated on the decreasing loan amount rather than the total amount borrowed in this technique.
How to Achieve a Lower Interest Rate
- It would be incredibly useful for you to invest in the proper places before you apply for a home loan. You can put the money towards a down payment on a house. If you’ve already paid a large sum at the start of your house loan, the amount you’ll borrow will be less, and so the interest rate will be lower.
- Making a house loan prepayment is one of the most effective strategies to save money and lower the loan interest rate. If you want to pay off your home loan early, you must be financially disciplined and determined. Furthermore, if a borrower chooses to prepay the loan, he or she will not be charged pre-closure fees if the interest rate on the home loan is adjustable (floating).
- Women and salaried individuals benefit from financial organisations as well. For example, some lenders give house loans to women at five basis point lower rates.
- Do you have multiple loans that you have to pay back each month? Many people have vehicle loans, credit card debt, and even student loans with interest rates that are higher than market rates. You may be able to lower your monthly payments and reduce the number of bills you have to pay each month by merging your debts with a lower interest rate.
- A higher income suggests a greater ability to repay the loan, which reduces the lender’s risk. This usually results in a cheaper interest rate on your home loan.
In addition, you can also opt for a home loan balance transfer to a new lender at a lower rate. This allows you to choose the best interest rate according to your requirement.