Buying a home is not an easy task, which is why it is a significant achievement for those who manage to do it. If you are aiming to be one of those proud homeowners but are worried about arranging the finances, a home loan can be of great help! There are many lenders out there offering home loans to borrowers with tenures that go up to 20 years. This means that you get the funds required to buy a property and get a decent tenure in which the loan’s monthly instalments can comfortably be repaid.
Now, there is a lot to think about before getting a housing loan. Even though the tenures offered by lenders are long-term, you still need to make sure that the home loan interest rate they are offering is affordable. This is because the interest rate can have a significant impact on the overall loan EMIs.
This is why it is necessary to understand these 4 things about the housing loan interest rate:
- It is possible to make the switch from fixed to floating interest rate and vice versa
If you have a floating interest rate and want to shift to a fixed home loan rate or vice versa, your lender can allow you to do so by charging a conversion fee, which could range from 1.75% to 2%. However, if you are shifting from a higher floating interest rate to a lower floating interest rate, the fee could be lower than 0.5%.
- You can opt for a home loan balance transfer for a better interest rate
If you have taken a home loan a few years ago and now find lenders offering much better interest rates, there is always an option of going for a home loan balance transfer. With this transfer, the outstanding balance of the loan would be transferred to the new lender and you will pay EMIs at the revised rate.
- A home loan interest rate has tax benefits
Each monthly instalment that you are paying has two components – the principal amount and interest amount. The interest portion can be claimed for tax deduction up to a maximum of Rs 2 lakh under Section 24 of the Income Tax Act.
- Your credit score is crucial in getting a good interest rate
Any lender will first review a borrower’s credit score before approving their loan application. If the borrower has a decent credit score, lenders offer low interest rates to entice them. On the other hand, if the credit score is not up to the mark, the loan application could get rejected or the loan could get approved with a high home loan interest rate, which is not an ideal situation.
Now that you are aware of the interest rate’s impact on your loan, make sure to get a good deal while negotiating with lenders. Before choosing a loan plan, it is advisable to first make use of a home loan calculator to understand whether you will be able to pay off the EMIs comfortably.