Potential home loan applicants are advised to do thorough research and negotiate with as many lenders as possible before signing a final home loan agreement with any one lender. While research allows loan applicants to get an idea of the lowest home loan interest rate they can get, negotiations allow them to explore the possibility of being offered a rate of interest slightly lower than what a lender is willing to offer them.

It is crucial that borrowers avail of the lowest home loan interest rate possible as the home loan interest rates directly impact the affordability of the home loan. Low home loan interest rates translate into low home loan EMIs, reduced interest outgo, and reduced cost of borrowing the loan. On the other hand, high home loan interest rates can make home loan EMIs unaffordable, push the total interest outgo much higher than one had anticipated, and increase the cost of borrowing the loan too. 

The question is how do lenders decide the interest rate to be offered to a borrower? What are the factors that impact home loan interest rates? And what are some of the things that home loan applicants can do to convince a lender to offer them the lowest interest rate possible? 

Tips on How to Get a Low-Interest Rate Home Loan

1. Maintain a High Credit Score 

A borrower’s credit score is a three-digit number between 300 and 900 which reflects their ability to repay loan money on time. Borrowers who always pay their credit card bills and loan EMIs on time, have a low credit utilization ratio, and a limited number of hard inquiries under their name have a credit score above 750.

A high credit score indicates high creditworthiness and repayment capacity and reduced risk for the lender in lending money to the applicant. Therefore, borrowers with a high credit score, i.e. anything above 750, get offered the best home loan deals and the lowest home loan interest rates. A credit score between 700 and 750 usually guarantees loan approval but not the best loan terms and conditions. A credit score below 699 makes getting approved for a loan quite difficult.

If you want to avail of a low-interest-rate home loan, make sure your credit score is at least 750.

2. Pay a Higher Down Payment 

In the case of home loans, lenders require borrowers to pay a certain value of the property being bought with the loan money as a down payment. In general, lenders ask borrowers to pay 20% to 30% of the property’s value as a down payment. Lenders ask for the down payment as this creates borrower’s equity in their home and therefore, reduces the chances of loan default. Borrowers can also choose to pay a higher down payment than is the norm or the requirement. By increasing the value of the down payment, the home loan borrower reduces the risk involved for the lender. It is thus that when borrowers are willing to pay a higher down payment, lenders also agree to offer their best or lowest interest rates to borrowers. 

To avail of a low-interest rate home loan, save for a higher down payment. 

3. Try Adding a Co-Applicant 

Lenders decide the home loan interest rate to be offered to a borrower based on several different factors, such as the applicant’s credit score, age, income, etc. When two people apply for a home loan together, i.e. when the primary applicant chooses to add a co-applicant, the lender takes into account the combined credit score and income while deciding the home loan interest rate to be offered.

When two people take on the responsibility of repaying the loan together, their combined income, credit score, and repayment capacity automatically make them eligible for better loan terms and conditions, including lower home loan interest rates, higher loan sanctions, and longer loan tenors to ease the burden of loan repayment. So, if you are not happy with the home loan interest rate being offered to you, add a co-applicant to your loan application, but make sure this co-borrower is someone with excellent repayment capacity.

4. Choose to Go for a Home Loan Balance Transfer

Home loan balance transfer refers to the process of transforming one’s home loan from one’s current lender to another offering better loan terms and conditions. While some people choose to go for a home loan balance transfer when they wish to change their loan tenor, interest rate regime or avail of a top-up loan, most borrowers opt for a home loan balance transfer when they find that another lender is willing to offer them a much lower interest rate.

However, all home loan borrowers must keep in mind that a home loan balance transfer attracts a fee and therefore, borrowers must do a proper cost-benefit analysis before opting for this facility. Ideally, borrowers must opt for a home loan balance transfer during the early years of their loan tenor when the interest component of the home loan is still quite high. They can also use a home loan balance transfer calculator to figure out if a home loan balance transfer would be the right choice for them.

Final Words 

Scoring a low-interest rate home loan deal is not as difficult as people think. All one needs is a good understanding of the factors that affect the home loan interest rates that an individual gets. Borrowers can use the tips mentioned in this article to avail themselves of a low-interest-rate home.