Securing the Best Home Loan Interest Rate

One of the leading newspapers in the country has recently reported that during the first half of the financial year 2024, the demand for home loans increased by 37%. These numbers are reflective of the popularity of home loans and the increase in demand that can be anticipated in the years to come.

The current home loan interest rates are higher than post-pandemic interest rates. However, they are still quite low. With the right credit profile and combination of factors, an individual can easily establish their eligibility for the lowest home loan interest rates and demand the same.

Here, we discuss a few simple things home loan applicants can do to make themselves eligible for the lowest home loan interest rates. 

Aiming for Lowest Home Loan Interest Rates? Here are Some Simple Tricks That Will Help

Apply With an Excellent Credit Score

Planning to avail a home loan? Check your credit score at least six months in advance and if it is short of at least 750, immediately take corrective measures. An excellent credit score guarantees immediate home loan approval and favorable loan terms and conditions. Building and maintaining a strong credit score is easy — pay EMIs and credit bills on time; use your credit cards wisely; maintain your old credit records alongside a healthy mix of both secured and unsecured loans; and do not be excessively dependent on credit.

Apply for a Loan Amount You Are Eligible For

Before you initiate your home loan application, use a home loan eligibility calculator to calculate the loan amount you qualify for. Request for this amount or something less to enhance your negotiating power. Asking for a home loan amount higher than you are eligible for will make your lender perceive you as a high-risk borrower, thereby diminishing your ability to ask for low housing loan interest rates.

Opt for a Low LTV Ratio Home Loan

For home loans, the LTV ratio can go as high as 90%. However, a high LTV ratio loan essentially means you wish to avail yourself of a very high loan amount. A high loan amount inevitably also increases the chances of loan default. To cover the risk involved, lenders charge a higher home loan interest rate on high LTV ratio loans. Ideally, home loan applicants must try and keep the LTV ratio below 70%.

Maintain a Low Debt-to-Income Ratio

If a considerable portion of your income is already going towards loan repayment, the lender you apply to will have every reason to doubt your repayment capacity and so, it is unlikely that they will show any keenness towards negotiating the terms and conditions of your loan with you. A low debt-to-income ratio, on the other hand, indicates excellent repayment capacity and a low risk of loan default. As a rule of thumb, if more than 40% of your total income is already going towards repayment of debt, it is improbable that your lender will sanction you a home loan at the lowest interest rates possible.

Opt for a Home Loan Balance Transfer

A home loan balance transfer or home loan refinancing provides a way to reduce the interest rate for those home loan borrowers who are already repaying a home loan. A balance transfer refers to the process of transferring the remaining balance on one’s home loan to another lender willing to re-sanction the loan on better terms and conditions, including lower home loan interest rates. One must however keep in mind that home loan balance transfers prove most effective during the early years of one’s home loan or when the interest component of one’s EMIs is significantly higher than the principal component.

Concluding Remarks

Other than the simple suggestions mentioned above, home loan applicants can also benefit from maintaining income and job stability. To lenders, frequent job switches signify instability and therefore, a higher risk of loan default. Lenders therefore offer their best deals to individuals with a stable income and job. They also extend beneficial loan terms and conditions to individuals who opt for a long tenor as a long tenor reduces the chances of loan default by helping one keep their EMIs affordable.

A home loan is a rather long commitment. It’s a long journey that can seem arduous in the absence of financial and repayment planning and if one commits the error of agreeing to high home loan interest rates. We also recommend that you use a home loan calculator for budgeting and repayment planning and ensuring that your home loan repayment journey remains smooth and hassle-free.

Q1: How can I secure the best home loan interest rate?

To secure the best home loan interest rate, maintain a good credit score, shop around for lenders, consider a shorter loan term, and make a larger down payment. Your financial stability and creditworthiness play a crucial role in negotiating favorable rates.

Q2: What is a credit score, and how does it affect my home loan interest rate?

A credit score is a numerical representation of your creditworthiness. Lenders use it to assess the risk of lending to you. A higher credit score often results in a lower home loan interest rate, as it reflects your responsible financial behavior.