5 Strategies to Ease Financial Burden as Home Loan Interest Rates

Since a home is one of your most valuable assets, you might save for years to purchase it. If you don't want to wait, a home loan can finance your purchase and spread out the cost over time. However, you'll pay interest on the loan. Lenders determine interest rates based on your credit history, loan term, amount, loan-to-value ratio, and repayment ability. Higher interest rates increase the cost of your home loan. Here are five strategies to reduce the financial burden of home loan interest rates.

1. Improve your Credit Score

The credit score is an important factor loan companies consider when determining your Home Loan eligibility and interest rate. If you have a decent credit score, you may negotiate for a lower interest rate from the loan provider. Maintaining a good credit rating is crucial for your Home Loan interest rate. Paying your EMIs and credit card bills on time, keeping a low credit utilisation ratio, and borrowing sparingly are some ways to maintain a good credit score. 

2. Choose the Shortest Possible Loan Tenure

Lending institutions have a time limit within which you must repay the loan. Since Home Loans involve substantial amounts of money, their repayment terms are lengthy up to 25 years. You may choose a repayment tenure according to your monthly repayment capacity. 

The longer the tenure, the smaller the EMIs. However, compounding will work against you if you take longer to repay the loan. Therefore, the best strategy is to choose the shortest possible loan tenure using a Home Loan calculator. Calculate your EMIs using this online tool and opt for a term with budget-friendly EMIs. Keep it as brief as possible to reduce the interest outgo.

3. Prepay the Loan Whenever Possible

Every extra EMI you pay for the Home Loan saves a significant amount on the Home Loan interest outgo. Whenever you receive a tax refund, bonus, dividend, or cash gift, allocate a portion of it towards the Home Loan prepayment. Regular prepayments will reduce your outstanding balance and shorten the loan term. Eventually, it minimises the total amount you pay towards the Home Loan interest rate. Prepayment helps you become debt-free sooner, save money on the interest outgo, and achieve complete homeownership.

4. Make a Bigger Down Payment

Reputable lending institutions, like Kotak Mahindra Bank, finance up to 90% of the property’s cost. However, the final loan-to-value ratio you receive depends on your credit history, loan eligibility, and repayment capacity. You must pay the remaining amount from your savings. 

Experts suggest that even if you qualify for the 90% LTV ratio, do not borrow all that you can. Evaluate your savings and see how much you can pay as a down payment. Make a bigger down payment to reduce your loan and interest burden. A higher down payment reduces your need to borrow. A smaller loan amount means easier repayment and less applicable interest. Your loan provider may also offer you a lower Home Loan interest rate due to the lower risk in sanctioning your loan.

5. Apply for a Joint Loan with Spouse 

The Indian government offers home loan tax benefits to promote homeownership. When you borrow a home loan, you can claim a tax deduction of up to ₹2 lakh on interest payments. If your spouse earns income, consider a joint loan to increase your eligibility. Both you and your spouse can claim a ₹2 lakh deduction, resulting in a total tax deduction of ₹4 lakh.

A joint home loan offers other benefits. In some states, stamp duty is lower when the property is registered in a woman's name. For example, in Delhi, stamp duty is 6% for men and 4% for women. A joint loan application also presents you as a more reliable borrower, potentially leading to a lower interest rate.

Reducing your home loan interest rate can save you significant money over the repayment term. Follow these strategies: maintain a good credit score, make a larger down payment, use a home loan calculator to choose a shorter tenure, prepay whenever possible, and consider adding your spouse as a co-applicant. Kotak Mahindra Bank offers competitive home loan interest rates, helping you buy your dream home.