Indians associate homeownership with financial stability. Real estate is one of the few sectors that has invariably delivered stellar returns over the long term and thus, Indians see real estate as a safe investment avenue. However, given the increase in real estate prices, buying a property with a home loan makes the homeownership journey smooth. It is consequentially not very surprising that the demand for home loans has multiplied significantly over the last decade, and the growth in demand continues unabated.
The interest rate at which you avail of a housing loan determines its feasibility. A high home loan interest rate may make the process of loan repayment challenging and increase the cost of borrowing the loan by increasing the total interest payout on the loan. Home loan borrowers must therefore try to avail themselves of the lowest housing loan interest rates possible.
This article discusses housing loan interest deduction techniques that will help you save on your total interest outgo and minimize the cost of borrowing the loan.
Maximizing Savings: Tips on How to Achieve Housing Loan Interest Deduction
Maintain a High Credit Score: Lenders see a high credit score, i.e. anything between 750 and 900, as the mark of a borrower who can be completely trusted with the repayment of loan EMIs on time. Lending money to such borrowers is perceived as a risk-free affair by lenders and thus, lenders show much willingness to negotiate on the loan terms and conditions with such loan applicants. A high credit score can therefore make it possible for loan applicants to avail themselves of the lowest housing loan interest rates possible.
Apply for a Loan Amount you Qualify For: Lenders decide home loan eligibility and the loan amount to be sanctioned to a borrower after taking into consideration factors, such as their income, age, job stability, debt-to-income ratio, etc. A home loan eligibility calculator takes into account these factors and tells a user the home loan amount they qualify for. Applying for a home loan amount that one is eligible increases one’s chances of availing of the loan on beneficial loan terms and conditions, including low-interest rates.
Choose to Go for a Low LTV Ratio Loan: The LTV ratio refers to the percentage of the pledged property’s current market value that can be sanctioned as a loan. In the case of home loans, the LTV ratio can go as high as 90%. However, lenders associate a high LTV ratio with a high chance of loan default. Therefore, high LTV ratio loans often attract a high housing loan interest rate. If you want to benefit from a low housing loan interest rate, opt for a low LTV ratio loan by paying a higher down payment.
Make Prepayments: Home loan borrowers can achieve housing loan interest deductions by making part payments whenever possible. Part payments help reduce the principal amount, which in turn, helps reduce the interest payout on the loan and therefore, the overall effective home loan interest rate.
Opt for a Home Loan Balance Transfer: Home loan borrowers can transfer the remaining amount on their home loan to another lender using the home loan balance transfer facility. Almost all lenders offer this facility and most home loan borrowers use this facility to benefit from a lower housing loan interest rate on offer. However, do keep in mind that home loan balance transfer attracts a fee and this fee can turn out to be a hefty amount. Thus, home loan borrowers wanting to achieve housing loan interest deduction through a home loan balance transfer must use a home loan balance transfer calculator to perform a cost-benefit analysis before taking a final call on whether the facility would indeed prove beneficial in the long run or not.
Final Words
A home loan is long-term and may affect other financial expenses. To manage the loan repayment, borrowers must try their best to get the lowest housing loan interest rate possible. They must also use the tips shared in this article to reduce the effective interest rate on their home loan.