Steps To Follow For High Home Loan Interest Rates

Home Loan rate of interest has a major role in loan repayment. This is why borrowers want to reduce Home Loan interest rates. When you divide the Home Loan interest rate components into two, there will be a reference rate and a spread.

The banks are not allowed to lend money below a specific rate, known as the reference rate. This rate can be either an external benchmark lending rate, such as the repo rate set by RBI or the internal benchmark rate, i.e. MCLR or Margin Cost of Funds based lending, which the banks set under the guidelines of the RBI.

Besides this reference rate, the banks keep a profit margin known as the spread. The banks decide this based on the loan amount and the customer’s credit score.

Steps to Get Lowest Housing Loan Interest Rate

You should ensure that you have the lowest housing loan interest rate, and this can be done easily if you follow these steps –

Refinance Your Home Loan

If you already have a Home Loan, you can refinance it at any moment throughout its term, known as a balance transfer Home Loan. When the bank raises the interest rate on your house loan, you can either negotiate and refinance your Home Loan on better loan terms with them or switch the loan provider.

Increase Your Down Payment and Lower Your Loan Amount

Aim for a higher down payment and then take advantage of a smaller loan to get a much cheaper interest rate. Depending on the borrower’s eligibility, most banks and financial institutions finance 75% to 90% of the property’s worth. Plan ahead of time and borrow less to reduce Home Loan interest rates.

Select a Home Loan with Floating Interest

In contrast to a fixed interest rate, a floating interest rate increases and falls with the rest of the market or other benchmark interest rates. It is usually 1 or 2% cheaper than fixed rates because it relies directly on the market.

Some of you may find it attractive because lesser interest equals more savings. But some of you may be concerned if the floating rate exceeds the fixed rate because such situations are short and will not affect the loan’s repayment duration.

Make Prepayment a Habit

Assume you are halfway through your house loan and about to face an interest rate increase. You can use your employer’s bonus and savings to pay down a larger percentage of your debt. It immediately reduces your principal and your EMIs. However, if you opt to finance a part-prepayment using your funds, ensure it significantly impacts your EMIs.

Reduce the Loan Term

One of the key factors influencing how much interest you will pay is the term of your loan. A long loan repayment period will reduce the EMI amount but increase the interest rate.

However, if you choose shorter terms, your EMI will be slightly more, but your total interest payments will be significantly lower. As a result, before taking out a house loan, you should carefully consider the term.

Keep Your Credit Score High

Your credit score demonstrates your ability to manage borrowed funds responsibly. A score of more than 750 is regarded as desirable since it indicates financial wellness. The bank will offer you a low-interest rate if the score is good. 

Revised EMI

The bank provides an option to change the EMI amount once a year. A person can ask for an increase in the EMI amount in case of an increase in income or salary. It will lead to the reduction of the loan period, and correspondingly, the interest rate will also reduce.


You can follow the above steps to reduce your Home Loan interest rates. However, you must consider the charges, rates, fees, and other aspects before reducing the Home Loan interest rate.

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