10 Smart Ways to Get a Home Loan at Low Interest Rates

A home loan is a long-term financial commitment that requires proper planning. Choosing a lender offering credit on favourable terms is the most important step, as this impacts your borrowing costs.

You can easily get an affordable loan offer when you follow certain tips and strategies. Learn 10 smart ways to get competitive interest rates from banks and NBFCs.

1. Research and Compare the Best Deal

Before applying for a home loan, do extensive research on the lender and the type of loan you wish to avail. This includes getting adequate information on the interest rate, type of home loan, tenure option, repayment process, the lender’s credibility, etc.

Most lenders provide their loan details and terms on their website, which can help you make the right decision. Knowing these facts well in advance can help you shortlist the best lender in the market.

After that, you can compare rates to apply with a lender offering the lowest home loan rates. This helps you select the most affordable plan that aligns with your requirements.

2. Opt for a Sustainable Loan Tenure

Lenders may charge a higher interest rate when you opt for a longer tenure. Likewise, you may enjoy lower interest rates for a shorter repayment tenure.

This is because a shorter tenure of 10 or 15 years minimises the risk for a lender as compared to longer tenure options of 20 or 30 years. Choosing a shorter tenure can increase your monthly instalments but reduce the overall borrowing costs.

This is because the interest is calculated on a shorter timeline and is thus lower. So, weigh the pros and cons before you select a tenure to avoid overburdening your finances. Use an EMI calculator to help you select a suitable option. A good rule of thumb to follow is to choose the shortest home loan tenure that you can afford.

3. Improve Your CIBIL Score Before Applying

Maintaining a high credit score before applying is one way to ensure you get the lowest home loan rates. Most banks and financial institutions are happy to approve borrowers with a credit score of 750 or more for a home loan.

To improve your CIBIL score, monitor your credit report periodically and reduce your credit utilisation ratio. Pay your existing loan EMIs and credit card bills on time. Also, correct any errors or discrepancies in your credit report to boost your CIBIL score.

4. Lower Your Existing Debts

Lenders always prefer that you maintain a low debt-to-income ratio. Simply put, this ratio gives a comprehensive view of the credit you owe against the income you earn. A higher ratio implies your existing financial obligations exceed your gross income.

This increases the risk for lenders, and you may not get an affordable offer. To avoid this, close your existing loans before applying for a new one. With a debt-to-income ratio of below 35%, you have a better chance of getting the lowest home loan rates.

5. Make a Sizeable Down Payment

By making a higher down payment, you can increase the chances of your home loan approval.

This also demonstrates that you are a responsible borrower committed to repaying the loan, further building the lender’s trust. In addition, your loan amount substantially decreases when you make a sizable down payment.

For example, say you are buying a house worth ₹ 50 Lakhs, and you make a down payment of ₹ 20 Lakhs. Now, you have to only get a loan for the remaining ₹ 30 Lakhs, which also decreases your borrowing costs.

6. Negotiate with Your Lender

Most banks and financial institutions offer loans after evaluating your credit score and financial standing. However, remember that you can negotiate with the lender to get better loan terms. To do so, it is important for you to have a good credit score and a spotless credit history.

A higher income also helps. You can even leverage a better deal and negotiate the loan terms if you make a large down payment.

7. Check Your Eligibility Before Applying

Checking your eligibility is the most critical step when comparing home loan offers and shortlisting lenders. This helps you save time and increase the chances of loan approval. While most lenders mention their eligibility criteria on their website, using a housing loan eligibility calculator is a better option.

This calculator allows you to see the maximum loan amount you are eligible for, helping you properly structure your repayment plan.

8. Apply with a Co-applicant

When you apply with a co-applicant, lenders can rest assured of your repayment capacity. This is because the lender considers both applicants’ income and credit score when sanctioning a loan.

So, applying with a co-applicant is better if you do not meet the required eligibility terms set by the lender. You can apply with a spouse, parent, sibling, or employed children.

9. Opt for a Loan with Floating Interest Rates

Home loan interest rates are of two types: fixed and floating. While fixed rates remain consistent throughout the tenure, a floating rate changes as per market fluctuations. Depending on the repo rate, inflation, geopolitical events and other factors, floating rates can vary across your loan tenure.

This way, you can enjoy lower rates, minimising your overall borrowing costs, or pay higher rates, based on the economy and money markets. However, remember that to start with, floating interest rates are slightly lower than fixed rates. This allows you to save more on your loan.

10. Read the Additional Charges Carefully

In addition to the interest, you must pay other fees and charges on your home loan. These are administrative charges, loan processing charges, documentation charges, etc., which increase the cost of borrowing.

Hence, you must carefully read the lender's terms and charges before applying for the loan. Accounting for these charges can help you evaluate your total repayment amount and make a better choice when comparing lenders.

With these tips, you can lock in a home loan with an interest rate that fits your budget. Choosing a suitable home loan offer can be a time-consuming process, but it affects your future finances, so you must not rush the process.

Remember that getting the lowest home loan rates depends on your property location and potential appreciation, income, credit score and other factors. So, research thoroughly and prepare your finances to negotiate the best loan offer.