While home loan interest rates in 2021 have been reduced to their historic lowest, there are several factors that borrowers must account for to enjoy a minimal cost of borrowing.
A host of parameters are taken into consideration which are calculating the home loan interest rate. Given that it is one of the biggest financial commitments that you would be making in your life, it would help you to get the most out of a home loan if you are aware of these factors -
Loan amount
Most financial institutions levy a higher interest rate for a larger loan quantum. Hence, it is advised to make a higher down payment on your housing loan if you want the monthly instalment outgo to reduce.
Credit score
Application for a home loan will only be considered if the borrowers' CIBIL score is 750 or above. With a high credit score, there is a greater chance of loan approval at a lower rate of interest. The same is also applicable if you are applying for a home loan with a co-applicant having a high CIBIL score.
Incidentally, if you apply for a home loan with your spouse, you are also eligible to enjoy home loan interest tax benefits.
Loan to value ratio
The loan to value ratio or LTV is the percentage of property value financed through the loan amount. The remainder has to be funded out of the borrower's pocket.
As per the RBI circular, the LTV is capped at 75% for a loan amount upward of Rs.75 lakh. Accordingly, the interest rate charged is also high. You can use a home loan EMI calculator to determine your monthly outgo to avail such a loan amount.
Type of rate of interest
Borrowers can opt for a fixed rate or floating rate of interest for a home loan. For a fixed-rate loan option, the interest levied is higher owing to a higher risk to lenders.
One must note that these factors that impact home loan interest rate will vary from one lender to another. Find out the applicable factors to avail the best interest rates.
Read Also: Know the Benefits of using Home loan Calculator
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