A Home Loan, as the name suggests, is a credit facility through which one can avail of funds to purchase or renovate a residential or commercial property. Notably, a housing loan is a secured loan, i.e., the funds are sanctioned against a tangible asset, which in this case Is the property being purchased.
Lenders sanction home loans for a predetermined period at an agreed-to interest rate. The period for which the loan is sanctioned is known as the tenor and often stretches up to 25–30 years. And the interest rate at which the funds are lent is compounded annually; thus, your overall interest outflow over your tenor can be substantial.
Therefore, one of the foremost factors that affect how much you end up paying over the course of the tenor towards your loan repayment is the interest rate. Read on to know some of the easiest ways to secure a low interest rate home loan.
Check and Enhance Your Eligibility
There are a number of internal and external aspects that lenders consider when extending funding for a home loan. One of the core aspects that decides the offer extended to you is, of course, your profile. This covers various aspects, including but not limited to:
- Your employment profile – Salaried, professional, or self-employed
- Your income – Net take-home salary or net total income from other sources
- Your financial profile – Savings, debts, etc.
- Your credit profile – Repayment history to showcase the likeliness of you repaying the sum without defaulting
- Your obligations – The amount you need to set aside to repay existing debts
The key to availing of a low interest rate home loan is enhancing your eligibility across the various factors that lenders take into consideration.
- Reduce your existing obligations before applying
Before sanctioning a home loan, lenders will assess your repayment capacity, which in turn depends on – how much you make, i.e., your income, how much you must set aside to pay your existing obligations, and the sum you are left with, i.e., your disposable income.
To showcase a higher repayment capacity, you will need to prove a higher disposable income. In line with this, it is a wise move to repay/reduce your existing obligations before you apply for a home loan.
For instance, let’s say you have a personal loan and an outstanding sum on your credit card. One of the easiest ways to enhance your profile to an extent is to repay one or both of these obligations before you apply for a home loan. This will show lenders you are left with more money at the end of every month to contribute toward the repayment of your home loan.
- Enhance your credit score before applying
Your credit score is a key factor that directly affects the interest rate offered to you. The score reflects your creditworthiness while your credit report gives lenders access to your repayment history, indicating how likely you are to repay the sum timely.
Individuals with a high credit rating translate to lower risk for the lender, since they are more likely to repay the amount without defaulting. Thus, those with a CIBIL score of 750 and above or 800 and above are likely to be offered the most favourable terms, assuming all other factors are also in place.
Similarly, lenders may reject applications from those with a CIBIL score lower than 700. On the other hand, some lenders may approve sanctions for those with a CIBIL score of 700 to 750 but at less than favourable terms.
Thus, it is prudent to check your credit score before applying, and, if needed, take steps to enhance it. There are a number of ways through which one can enhance their CIBIL score, such as:
- Limit your credit utilisation to less than 30%
- Refrain from applying for too much credit at a time
- Don’t keep applying if your application is rejected
- Repay your EMIs on time
- Check your credit report for inaccuracies
- Refrain from ‘settling’ your loans and credit cards
- Maintain a healthy credit mix
Read More: Ideal CIBIL Score For Home Loan
- Don’t forget to check how your property is affecting your offer
Properties that are centrally located with a range of amenities and good construction by a renowned developer are likely to fetch a better offer than those that aren’t. This is because the property offers a higher probability of high resale value, thereby lowering the lender’s risk.
To ensure your property lets your avail of the best possible terms, it is prudent to choose a construction from your lender’s list of approved projects. These are essentially projects that have been vetted by the lender and found to be at par with their standards on a number of factors.
When you purchase a property from one of the lender’s list of approved projects, you not only benefit from the most favourable terms but you also enjoy quick processing and approval.
- Transfer your existing home loan
Those with an existing home loan who would like to avail of a more competitive interest rate can transfer the balance amount on their loan to a new lender through a home loan balance transfer facility. When you switch to a new lender you have the opportunity to renegotiate the terms of your loan – be it the rate of interest or tenor.
Once you bear the above points in mind when applying for a home loan, you give yourself the best chance of availing of a competitive offer. Needless to say, you need to be thorough in your research before applying for a sanction. Compare the leading lenders in the market and their offerings, especially their starting interest rates, before approaching a few.
Bajaj Housing Finance Limited, a 100% subsidiary of Bajaj Finance Limited, is one of the leading home loan lenders today. The Bajaj Housing Finance Home Loan starts as low as 7.20%* p.a. for salaried and professional applicants. Borrowers also have the option to link their home loan interest rate to the RBI repo rate, thereby benefitting from transparency into the rate-setting mechanism. Interested applicants can apply on the lender’s official website.
*Terms and conditions apply