The Home Loan market has begun to pick up from the slumber it had hit over the last 3-4 years, courtesy of some major reforms introduced recently by RaghuramRajan, Governor of the Reserve Bank of India.
First, of them, was the unveiling of the base rate formula last year, which meant that banks and NBFCs couldn’t charge interest rates on a whim and had to follow a specific guideline. The second was the rolling out of the Marginal Cost of funds based Lending Rates (MCLR) in March this year, which ensures that all new Home Loan applicants get the benefit of the reforms.
These reforms have already brought about an upliftment in prospective home buyers’ spirits, meaning more and more people are venturing out of their shell and applying for Home Loans. However, a vast majority of them are still looking for ways to get as low an interest rate as possible on their loan, so that they can reduce the burden of paying too much interest charges.
If you are one of those, here are a few tips that can help you get the Home Loan rate you are hoping for.
Compare interest rates from different financial institutions
You may already know that there’s no dearth of banks and NBFCs that offer Home Loans in India. So, take your pick, get a Home Loan quotation from a few select institutions and compare their loan offers against each other.
Make sure to get in touch with a number of public and privatised banks and NBFCs to get a range of loan deals to ultimately find out the one that suits you best. The Home Loan rate in India currently start at 9.4% and can go as high as 19%, depending on the type of interest rate you choose—fixed or floating rate.
Also, enquire about the cost of acquiring a new loan, which usually includes processing fees and other hidden costs. Once done, pick the offer that best suits your requirements.
Put your negotiation skills to use
Getting a Home Loan isn’t simply about you agreeing to the terms offered by the lenders, as chances are they need you and your business more than you need them. You can use this fact as a bargaining chip to negotiate a good interest rate on your loan.
While bargaining isn’t a bad thing, don’t overdo it because you might lose out on a good deal. Before you sign on the dotted line, have a talk with the lending officials. Sometimes, these talks can lead to you getting a 0.25%-0.5% interest cut on your Home Loan.
Time it right
Lending institutions usually work to meet a target—a number of loans they will need to be disbursed within a specific time frame. So, time your loan application right and go ahead with it only after you have finalised the property. Usually, banks and NBFCs offer the best deals when they need to make immediate disbursements so as to avoid losing a valuable customer who can give them decades-long business.
Work in a major corporation
Financial institutions work on a case-to-case basis most of the times and the interest they show on a public domain isn’t always applicable to all their customers. This means that banks and NBFCs usually favour those individuals who work with popular organisations and earn good salaries. While this isn’t a requirement per se, being employed in a big corporation can get you a better loan rate and terms.
For starters, if a lender is offering loans at 13% to other customers, you might get one at just 12.75%. Although this doesn’t seem like a big deal, it can certainly help you save up a lot of money depending on the loan amount you are taking.
Get a loan from an institution you know
There’s a reason why old customers are often preferred over new ones. This is because old customers tend to already have a rapport, which is what financial institutions tend to use to get more business. So, go for a loan with an establishment that you are already doing business with, in order to avail added benefits and get a lower rate of interest.
Here’s an example of how it can help you. Financiers usually reset their lending rate each quarter beginning from April and go on to July and October. When a lender increases the rates in April, it will have an immediate effect on new borrowers. However, if you are an old customer, the revised rate of interest will come into effect from October.
Maintain a good credit score
You might already know that a good credit score is mandatory for people looking for a loan and is required to calculate Home Loan eligibility. But, what you probably didn’t know is that maintaining a good credit score can actually get you a much better interest rate. Some lenders might even be willing to reduce the interest rate by 0.25% to 0.5% if you have had a spotless credit report. However, remember that you will need to maintain a score not less than 750 to take advantage of a better Home Loan rate.
Here’s how can you do this.
Pay your bills on time
Always pay your EMIs and credit card bills ahead of its deadline date; this can translate into points that leave a positive mark on your credit report.
Don’t apply for credit when you don’t need it
You will always get credit card and loan offers from various parties. Do not go for these unless you have an imminent need for cash. By doing so, you paint yourself as a responsible borrower.
Check your credit report
Credit reports are susceptible to clerical errors, so always make sure to track your report and fix any anomalies you encounter by contacting the credit bureau.
It’s a known fact that repaying Home Loans can take go up to 20 years or more, and having a low rate of interest can reduce the total interest you pay to complete the loan. Use the simple tips mentioned above to get an optimal rate of interest and reduce the burden. For all you know, you might even get luckier and get exactly what you are looking for.