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Tips for Cutting Down Your Home Loan Interest Rate

Buying a home with cash is the best way to achieve that American dream, but that is out of the reach of most people. Home loans make it possible, but they come at a cost. The average interest rate for a home mortgage is on an upward trend. As of July 31, 2023, it is 7.27 percent. That means, with property taxes and insurance, you could be paying 50 percent of your purchase price over 15 years.

It would be advantageous to cut down your home loan interest rate or at least reduce the interest you pay. Here are some tips for doing that.

Raise Your Credit

Lenders put a high premium on the credit score when calculating the interest rate for home loans. High credit scores mean less risk of default, so they are more likely to offer favorable loan terms to attract those people.

The first step you need to take before applying for a loan is to check your credit score. The highest credit score is 850, so the closer you get to that, the better interest rates you get. Most US lenders prefer the FICO model, which primarily considers your payment history and amounts owed. Raise your credit score by keeping your exposure low. Pay off any revolving credit and avoid applying for new credit accounts.

Review Your Tenure

The loan tenure is when you will pay back your home loan. The most common tenures are 15 and 30 years; longer tenures typically mean lower monthly payments. However, the longer your tenure, the more interest you pay overall. Shorter tenures do not necessarily translate to low-interest rates, but you will save a bit of money by paying less interest.

Decide how much you can afford monthly for your mortgage and tell your lender. You can work from there to decide the most suitable loan tenure for your financial situation.

Choose Variable Rate Loans

Lenders may offer fixed and variable-rate loans. A fixed loan sets the interest rate for the loan tenure. In contrast, a variable rate fluctuates based on the underlying benchmark. Variable-rate loans often have lower interest rates than fixed-rate ones, making them more cost-effective. However, the rates may increase annually, so you should understand the risk.

Ask for Lower Rates

Your credit score is important but not the end-all and be-all. Suppose you have a good relationship with a bank with a salary account. When you apply for a loan, you can negotiate a lower interest rate with them. It doesn’t hurt to ask; most banks will try to keep a long-standing client happy.

Give a Higher Downpayment

Most lenders require a downpayment of 20 percent for a home loan, although that could be lower for certain loans. Whatever the case, you can save money by paying more at the start. Doing that reduces the principal, which is the basis of your interest pay.

For example, suppose you are purchasing a home valued at $100,000. The lender offers you a 15-year loan at 6.7 percent interest. If you pay a 20 percent downpayment ($20,000), your monthly payment is $989.05. If you pay a downpayment of 40 percent ($40,000), your monthly payment is $812.62. That might not seem like a lot, but over 15 years, you saved $11,757.40 ($31,757.40 – $20,000).

Shop Around

Don’t think that because you have a home loan with one lender, you must stick with them to the end. You can shop around for a better deal and transfer your loan, provided you have never missed a payment. However, you should know that transferring may incur processing fees and other costs. Find out all the details from your current and prospective lenders before deciding. You might be better off with a rate-and-term refinance if the prevailing rates are substantially lower than your existing mortgage.


Home mortgages are not set in stone. Paying less for your home loan by lowering your interest rate or reducing the principal amount is within your reach. Remember that lenders are willing to work with you if you ask. These tips can help you achieve that with a little effort.


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