Home loans are long-term, and their interest rates are comparatively lower than short-term unsecured loans. However, borrowers always look for lower construction loan interest rates as the principal amount is relatively high.

Pradhan Mantri Awas Yojana (PMAY)

The Pradhan Mantri Awas Yojana (PMAY) is an initiative taken by the Government to make home loans cheaper for the general public. Beneficiaries can avail subsidies on interest rates under the Credit-Linked Subsidy Scheme (CLSS) of PMAY provided you are a first-time borrower.

The beneficiaries and subsidies under this scheme include:

  • Economically Weaker Section (EWS) and Low Income Group (LIG) – Interest subsidy of 6.5% on loans up to Rs. 6 Lakh.

  • Middle Income Group I (MIG I) – Interest subsidy of 4% on loans up to Rs. 9 Lakh.

  • Middle Income Group II (MIG II) – Interest subsidy of 3% on loans up to Rs. 12 Lakh.

 

You can also secure lower interest rates on home construction loans if you don’t qualify for the PMAY or want to avail a higher loan amount.

Some of these ways are:

  1. Opt For A Shorter Tenor

Opting for a shorter tenor has two benefits:

  1. Lowers the rate of interest offered by the financial institution.

  2. Makes the cost of loan (principal + total payable interest) cheaper (compared to longer tenor).

Repaying a home loan faster makes repayment less risky for the lender. Hence, they may charge you lower interest rates.

However, do note that a shorter tenor will make the EMIs expensive compared to longer tenor. For instance, a home loan of Rs. 15 Lakh at a 12% rate of interest will have EMIs of Rs. 16,500 (approx.) for 20 years and Rs. 18,000 (approx.) for 15 years.

A home loan EMI calculator is an efficient tool to calculate your EMIs and select the correct tenor.

  1. Make A Larger Down Payment

Lending institutions determine the risk involved in a home loan by finding the loan to value (LTV). The LTV is the ratio between your loan amount and the price of the house you are looking to buy.

A higher LTV increases the risk for the lender. However, it also lowers your down payment – the balance amount you have to contribute.

Making a larger down payment lowers the loan amount and also lowers the lender’s risk and thereby your home loan interest rate.

Also, use a home loan eligibility calculator to check the amount you are eligible for depending upon various factors.

  1. Avail Balance Transfer Facility

You can take advantage of a balance transfer facility to reduce your existing home loan interest rates. This feature enables you to transfer the balance of your home loan from your current lender to another one, which is offering lower construction loan interest rates. You should know everything about loan balance transfer in detail before you opt for it.

Following these three ways can help you avail lower home construction loan interest rates. There are certain additional terms and conditions which you will need to fulfil to ensure approval and a quick disbursal.

These include:

  1. Fulfilling The Eligibility Criteria

You have to be between the ages of 23 and 62 with a work experience of 3 years if you are salaried. On the other hand, you have to be between the ages of 25 and 70 years with experience of 5 years in your current business if you are self-employed.

  1. Provide All The Documents

KYC documents address proof, and bank account statements are the mandatory documents you need to apply. Salaried individuals have to provide salary slips while self-employed ones have to produce business existence proof.

Make sure you know about the hidden costs of buying a home before you apply for a loan. Also, compare all the options available while choosing the lender.