Buying a home is one of the biggest financial commitments. A home loan with a lower interest rate can help you save lakhs of rupees over time. However, lenders offer different interest rates based on your creditworthiness, income stability, and loan amount.
By taking the right steps, you can secure a low-interest home loan and reduce your overall borrowing cost. Here are some smart strategies to get the best possible deal.
Maintain a High Credit Score
Your credit score is one of the biggest factors that determine your home loan interest rate. A high credit score (750 or above) assures lenders that you are a responsible borrower.
Check your credit score before applying – If your score is below 750, take steps to improve it
Pay your EMIs and credit card dues on time – Late payments negatively impact your score
Avoid multiple loan applications at once – Too many inquiries can lower your score
Clear outstanding debts – Reducing existing liabilities improves your credit profile
A higher credit score not only helps you get a lower interest rate but also increases your chances of loan approval.
Compare Interest Rates from Multiple Lenders
Different banks, NBFCs, and housing finance companies offer different interest rates on home loans. Instead of settling for the first lender you approach, compare offers from multiple financial institutions.
Check rates on aggregator platforms – Websites and financial marketplaces like Bajaj Markets allow you to compare interest rates easily
Look for special discounts – Some lenders offer lower rates to salaried professionals or existing customers
Consider government-backed loan providers – Public sector banks often offer competitive interest rates
By comparing lenders, you can find the best deal and potentially save a lot on interest payments.
Opt for a Shorter Loan Tenure
Home loans are typically available for up to 30 years, but choosing a shorter tenure can help you secure a lower interest rate. Shorter tenure loans carry lower risk for lenders, which results in reduced interest rates. Although EMIs may be higher, you pay significantly less interest in the long run. For example, a 20-year home loan has a lower interest rate compared to a 30-year loan, and the overall interest paid is also much lower. Consider using an EMI calculator to balance affordability and overall savings.
Choose a Floating Interest Rate
Home loans come with fixed and floating interest rates. Usually, the fixed home loan interest rates remain constant, while floating rates fluctuate based on market conditions. Floating rates are generally lower than fixed rates in the long run. If the RBI lowers the repo rate, floating interest rates decrease, reducing your EMI burden. A floating rate can be beneficial if interest rates are expected to decline over time. Some lenders also allow switching from fixed to floating rates if market conditions are favourable.
Make a Higher Down Payment
Lenders typically finance 75%-90% of a property's value, requiring you to pay the rest as a down payment. A higher down payment reduces your loan amount and interest burden. Try to pay at least 25%-30% of the property’s value upfront. A lower loan amount means a lower interest outgo. Typically, a higher down payment reduces the lender’s risk, which can help you negotiate a lower interest rate.
Apply with a Co-applicant
Applying for a joint home loan with a co-applicant, such as a spouse or parent, can help you secure better loan terms. If the co-applicant has a high credit score and stable income, the chances of approval improve. Many lenders offer lower interest rates for joint applicants. Women co-applicants often receive an interest rate discount of 0.05%-0.10%. Adding a financially strong co-applicant enhances your eligibility and can help reduce the home loan interest rate.
Keep a Low Debt-to-Income (DTI) Ratio
Lenders usually assess your DTI ratio, which compares your monthly debt obligations to your income. A low DTI ratio signals financial stability to lenders, increasing the likelihood of securing a better interest rate. This improves your chances of getting a low-interest home loan. Keep your DTI ratio below 40%. This means your total monthly loan repayments should not exceed 40% of your monthly income. Clear any outstanding debts before applying for a home loan. Avoid taking new loans before home loan approval, as it increases your liabilities.
Check for Government Subsidies
The Government of India offers home loan subsidies under various schemes, which help reduce interest rates.
Pradhan Mantri Awas Yojana (PMAY) – Eligible first-time homebuyers can get interest subsidies of up to 6.5% under the Credit-Linked Subsidy Scheme (CLSS)
State housing schemes – Some states provide additional housing loan subsidies for eligible applicants
Checking government subsidies can significantly reduce your overall loan interest burden.
Consider a Home Loan Balance Transfer
If you already have a home loan but find a lender offering a lower interest rate, you can transfer your loan to another bank. Home loan balance transfer helps reduce EMIs and total interest payments. However, be sure to check the processing fees and transfer costs before switching lenders. Ensure the new lender offers better loan terms to make the transfer worthwhile. A balance transfer is beneficial if your current loan carries a higher interest rate and you have a long repayment tenure left.
Negotiate with Your Lender
If you have a good credit history and a strong financial profile, you may be able to negotiate for a lower interest rate. Existing customers of banks/NBFCs may get preferential interest rates. If you have a long-standing relationship with the lender, they may offer you a special discount. Showing multiple offers from different lenders can help in negotiations. Negotiating with your lender can help you secure a better deal, especially if you meet all their eligibility criteria.
Securing a low-interest home loan requires a mix of careful financial planning, lender comparison, and smart application strategies. Following the tips discussed above can help you get a home loan at the lowest possible interest rate, saving you money in the long run.
Buying a home is one of the biggest financial commitments. A home loan with a lower interest rate can help you save lakhs of rupees over time. However, lenders offer different interest rates based on your creditworthiness, income stability, and loan amount.
By taking the right steps, you can secure a low-interest home loan and reduce your overall borrowing cost. Here are some smart strategies to get the best possible deal.
Maintain a High Credit Score
Your credit score is one of the biggest factors that determine your home loan interest rate. A high credit score (750 or above) assures lenders that you are a responsible borrower.
Check your credit score before applying – If your score is below 750, take steps to improve it
Pay your EMIs and credit card dues on time – Late payments negatively impact your score
Avoid multiple loan applications at once – Too many inquiries can lower your score
Clear outstanding debts – Reducing existing liabilities improves your credit profile
A higher credit score not only helps you get a lower interest rate but also increases your chances of loan approval.
Compare Interest Rates from Multiple Lenders
Different banks, NBFCs, and housing finance companies offer different interest rates on home loans. Instead of settling for the first lender you approach, compare offers from multiple financial institutions.
Check rates on aggregator platforms – Websites and financial marketplaces like Bajaj Markets allow you to compare interest rates easily
Look for special discounts – Some lenders offer lower rates to salaried professionals or existing customers
Consider government-backed loan providers – Public sector banks often offer competitive interest rates
By comparing lenders, you can find the best deal and potentially save a lot on interest payments.
Opt for a Shorter Loan Tenure
Home loans are typically available for up to 30 years, but choosing a shorter tenure can help you secure a lower interest rate. Shorter tenure loans carry lower risk for lenders, which results in reduced interest rates. Although EMIs may be higher, you pay significantly less interest in the long run. For example, a 20-year home loan has a lower interest rate compared to a 30-year loan, and the overall interest paid is also much lower. Consider using an EMI calculator to balance affordability and overall savings.
Choose a Floating Interest Rate
Home loans come with fixed and floating interest rates. Usually, the fixed home loan interest rates remain constant, while floating rates fluctuate based on market conditions. Floating rates are generally lower than fixed rates in the long run. If the RBI lowers the repo rate, floating interest rates decrease, reducing your EMI burden. A floating rate can be beneficial if interest rates are expected to decline over time. Some lenders also allow switching from fixed to floating rates if market conditions are favourable.
Make a Higher Down Payment
Lenders typically finance 75%-90% of a property's value, requiring you to pay the rest as a down payment. A higher down payment reduces your loan amount and interest burden. Try to pay at least 25%-30% of the property’s value upfront. A lower loan amount means a lower interest outgo. Typically, a higher down payment reduces the lender’s risk, which can help you negotiate a lower interest rate.
Apply with a Co-applicant
Applying for a joint home loan with a co-applicant, such as a spouse or parent, can help you secure better loan terms. If the co-applicant has a high credit score and stable income, the chances of approval improve. Many lenders offer lower interest rates for joint applicants. Women co-applicants often receive an interest rate discount of 0.05%-0.10%. Adding a financially strong co-applicant enhances your eligibility and can help reduce the home loan interest rate.
Keep a Low Debt-to-Income (DTI) Ratio
Lenders usually assess your DTI ratio, which compares your monthly debt obligations to your income. A low DTI ratio signals financial stability to lenders, increasing the likelihood of securing a better interest rate. This improves your chances of getting a low-interest home loan. Keep your DTI ratio below 40%. This means your total monthly loan repayments should not exceed 40% of your monthly income. Clear any outstanding debts before applying for a home loan. Avoid taking new loans before home loan approval, as it increases your liabilities.
Check for Government Subsidies
The Government of India offers home loan subsidies under various schemes, which help reduce interest rates.
Pradhan Mantri Awas Yojana (PMAY) – Eligible first-time homebuyers can get interest subsidies of up to 6.5% under the Credit-Linked Subsidy Scheme (CLSS)
State housing schemes – Some states provide additional housing loan subsidies for eligible applicants
Checking government subsidies can significantly reduce your overall loan interest burden.
Consider a Home Loan Balance Transfer
If you already have a home loan but find a lender offering a lower interest rate, you can transfer your loan to another bank. Home loan balance transfer helps reduce EMIs and total interest payments. However, be sure to check the processing fees and transfer costs before switching lenders. Ensure the new lender offers better loan terms to make the transfer worthwhile. A balance transfer is beneficial if your current loan carries a higher interest rate and you have a long repayment tenure left.
Negotiate with Your Lender
If you have a good credit history and a strong financial profile, you may be able to negotiate for a lower interest rate. Existing customers of banks/NBFCs may get preferential interest rates. If you have a long-standing relationship with the lender, they may offer you a special discount. Showing multiple offers from different lenders can help in negotiations. Negotiating with your lender can help you secure a better deal, especially if you meet all their eligibility criteria.
Securing a low-interest home loan requires a mix of careful financial planning, lender comparison, and smart application strategies. Following the tips discussed above can help you get a home loan at the lowest possible interest rate, saving you money in the long run.
