Most people do not have enough cash or bank balance to buy a home, so a mortgage loan becomes necessary. A mortgage loan is when you borrow money from a lender, a traditional bank or an NBFC and pay it back plus interest in instalments.
Here are some tips to help you get the best mortgage rate for your Home Loan.
- Improve Your Credit Score
Consistently strive to improve your credit score to increase loan approval chances and secure a low rate of interest on it.
Even a slight boost in the credit score positively affects your interest rate considerably. According to recent data from FICO (Credit score by Fair Isaac Corporation), if you can increase your credit score slightly, your interest rate will decrease by as much as 0.60%.
- Calculate Your Loan EMI
Use a mortgage loan EMI calculator to figure out how much the monthly EMI is going to be. Based on that, decide how much loan you can afford. Along with the EMI, you also have to keep in mind other expenses that come with buying a house like property taxes, homeowner’s insurance, maintenance costs, furnishings, etc.
- Choose a mortgage loan that best fits your needs.
There are various types of mortgage loans. You
- Fixed-Rate mortgage loans: Fixed-rate mortgages are offered at a fixed rate of interest. It means monthly instalment remains the same throughout the life of the loan.
- Variable-rate or floating rate mortgage loans: Floating rate mortgage loans are offered on a variable interest rate. The interest rate fluctuates with movement in the base rate.
- Adjustable-rate mortgage loan: In an adjustable-rate mortgage loan, the interest rate is fixed for some of the initial periods of the loan tenure. It changes depending on the performance of the economy.
- Simple mortgage loans: In this, the property owner does not get transferred from the borrower to the lender.
- Usufructuary mortgage loan: In this type of mortgage, the borrower has the right to sell the property to the lender.
- Subprime mortgage loan: These have a higher interest rate as these are offered to borrowers with poor credit history.
- English mortgage: In this, the borrower agrees to transfer the property absolutely to the lender if they cannot pay off the loan until a particular date.
- Keep a steady income
Keep your income steady before applying for a loan. Do not change or quit your job just as you are going to apply for a loan. Lenders usually want to see that you are at the same job for over two years. Also, if you can increase your income before applying for a loan against property, it will act as an added plus – Whether it is an increment on your current job or some extra cash from a part-time job.
- Save money for a down payment.
Making a big down payment is a great way to get a good loan against property interest rates. Typically you want to make a 20% down payment of the amount of your home. Lenders sometimes will accept a down payment of less than 20%, but that usually means you have to pay for private mortgage insurance, ranging from 0.05% to 1%. Also, do not drain your savings completely to make a very high down payment because you will still have closing costs to cover, which can range from 2% to 5% of the loan amount.
- Compare multiple lenders
Get quotes from different lenders and compare their terms. Rates differ from one lender to another, so it is advisable to shop around a bit before selecting one lender.
Using the tips shared above, you can get the best deal on mortgage loans. Thorough market research and understanding your financial liabilities are crucial to making an informed decision while selecting the mortgage loans that can meet your requirements.