Home loans invariably involve a hefty amount. Further, home loans are also a long-term commitment with the average tenor moving around 20 years. Thus, before one avails of a home loan, there are two key things one must do. First, they must use the home loan calculator to work out their EMI commitment and make sure their income will allow them to comfortably afford the burden of the EMIs they plan on taking. Second, they must do everything possible to avail themselves of the lowest home loan interest rate possible. In this article, we share some simple and useful tips on what loan applicants can do to avail themselves of the lowest home loan interest rate possible.
Simple Tips on How to Avail of the Lowest Home Loan Interest Rates
Make Sure Your Credit Score is 750 or Above
When an individual applies for a loan, one of the first things that a lender does is check the loan applicant’s credit score. The credit score is indicative of their repayment capacity and therefore, allows lenders to accurately gauge the risk involved for them in doing business with the applicant. A high credit score indicates minimal risk and so, applications from individuals with credit scores in the range of 750 to 900 not only meet with quick home loan approval but such individuals also demand the lowest home loan interest rates possible.
Keep the LTV Ratio Low
When it comes to home loans, lenders sanction up to 85% of a property’s current value as a loan. The LTV ratio refers to the percentage of a property’s total current market value that has been released as a loan. In the case of high LTV ratio loans, the risk for the lenders is high and therefore, lenders sanction these loans at high-interest rates. Low LTV ratio loans, on the other hand, help fetch loan applicants a lower rate of interest. So, if you want to get yourself the lowest current home loan interest rate, apply for a low LTV ratio loan.
Go for Floating Interest Rates
Home loan interest rates are of two types: fixed and floating. Floating interest rates change with changing market conditions. Fixed home loan interest rates, on the other hand, remain unchanged irrespective of the external market conditions. From a lender’s perspective, fixed interest rates tend to be riskier. Therefore, lenders always charge a higher home loan interest rate when borrowers opt for a fixed interest rate home loan. If you want to benefit from low home loan interest rates, go for floating interest rates on your home loan.
Balance Transfer Your Home Loan
Home loan balance transfer is a facility that all lenders offer these days. Using this facility, home loan borrowers can transfer the remaining home loan balance amount to another lender willing to re-sanction their home loan at a lower rate of interest. Though a home loan balance transfer is an excellent option to reduce home loan interest rates, the process involves a fee, which can easily surpass one’s total savings from a balance transfer if the transfer is not timed well. As a rule of thumb, a home loan balance transfer proves beneficial only when there is at least a 25bps difference in one’s current and new home loan interest rates and the remaining tenor is 10 years. Home loan borrowers can use a home loan balance calculator to make sure that the transfer will prove beneficial and fruitful in the long run.
Go for a Long Tenor
Lastly, if you want to avail a home loan and get the lowest home loan interest rate, opt for a long-tenor loan. A long tenor helps keep one’s EMIs affordable even when the loan amount is high. Further, a long tenor works in favour of lenders as it increases the total interest payout on one’s loan. Therefore, opt for a long tenor to benefit from low home loan interest rates.
Final Words
These simple tips will certainly help you win the best home loan deal. Here is an additional tip: while availing yourself of a home loan, plan for future contingencies and set aside an emergency fund. This will help you navigate a difficult situation, if it ever arises, comfortably and repay your loan without defaulting on it.
