Whenever the lending interest rate increases, it directly impacts the EMIs of loan borrowers. A longer tenure and a bigger loan amount have a greater impact on the overall loan repayments.

For example, if you have a personal loan of Rs 1 lakh with a 1-year repayment tenure and the interest rate increases from 10% to 11% per annum, it would result in an increase in the EMI from Rs 8792 to Rs 8838 i.e., by Rs 46 per month, and the total repayment will increase by Rs 552.

Similarly, if you have taken a home loan, the impact could be bigger. Let us say you have a home loan of Rs 50 lakh for a 20-year tenure and the interest rate increases from 8.5% to 9.5% pa, it would result in an increase in the EMI from Rs 43391 to Rs 46607, i.e, Rs 3216 per month, and the overall payment amount will increase by a whopping Rs 7.72 lakh.

So, it’s essential to manage your big loans carefully whenever there is a change in the interest rate.

Thankfully, after a series of rate hikes in the past 18 months, the repo rate is stable at 6.50% currently and it can be a good time for you to bring your home loan interest rate back to your comfort level. Let’s find out some important ways to do it.

Also Read: Special fixed deposits offering up to 8.5% – Compare interest rates

Transfer the Loan

As the interest rate has remained stable in the last few months and most of the banks have already adjusted their home loan lending rates with the current repo rate, it may be a good time to find out a lender that offers the minimum interest rate on home loan transfers. For example, suppose you have taken a home loan of Rs 50 lakh with a 20-year repayment tenure and your bank is currently levying the interest of 9.10%, while there are other banks offering you the option to transfer the loan to them at an interest of only 8.40% pa. By transferring the loan, you can easily lower your EMI by Rs 2,233 per month.

Before transferring, however, beware of the charges involved. Choose the banks that allow loan transfers with the lowest interest rate along with the minimum loan transfer charges.

Improve your Credit Score

Most of the banks levy the interest rate on home loans based on their slab rates which are linked to the credit score of the borrower, the loan amount and the tenure. You can’t change the loan amount and the tenure, but you can definitely improve your credit score if there’s a scope. Usually, most lenders levy an additional premium over and above their base lending rate if the credit score of the borrower is low. Banks normally offer a .25% to .50% lower rate of interest to the borrower having a credit score higher than 750.

Adhil Shetty, CEO, Bankbazaar.com, says, “You can improve your credit score by repaying the existing EMIs on time, avoiding new loans and not putting in new loan enquiries. Using your credit cards regularly while keeping the credit utilisation below 30 per cent and repaying the outstanding before the due date can also help you in improving your credit score.”

Re-negotiate Loan Terms

No lender wants to let their customer go away. So, before you talk to other banks, you must check with your existing lender and negotiate with them for getting a better deal and reduce the interest rate. Often negotiation works in favour of the borrower. It can save you time and build a better rapport with your existing lender.

In conclusion, the interest rate depends on several factors. So, you must be ready to handle in case rates are increased and repay your loan without any financial hardship. Maintaining an extra financial cushion can help you in such a situation. So, once you are successful in bringing down your home loan interest rate, you can use the saved money to create a financial cushion.