Top 6 factors that can affect home loan interest rates

When it comes to applying for a home loan, you need to pay interest rate charges. A longer tenor may lead to the payment of higher home loan interest charges. 

Many people do not consider aspects that can affect their housing loan interest rate charges. 

On that note, let’s check out a few factors that can affect your home loan interest rate!

1. Credit score

Credit score plays an important role when it comes to your finally offered housing loan interest rates. The higher it is, the lower is your home loan interest rate. Lenders reward you because you have paid your outstanding on time. 

2. Interest rate types 

Your home loan comes with fixed and floating types of rates. Floating rates are relatively lower than fixed ones. Hence, the type of your home loan also affects your housing loan interest rates. 

3. Property location

Home loan interest rate varies as per the location of your property. If it is centrally located, lenders will offer a lower rate of interest. It is because they will find it easier to liquidate your property in case of defaults. 

4. Loan tenor 

A longer tenor means paying lower home loan EMI but more housing loan interest rate charges, and vice versa. 

5. Your loan amount 

The higher is your home loan amount; the more will be your payable housing loan interest. 

6. Your income stability 

If you are employed with an MNC, Public or a Private Limited Company for at least 3 years, you may enjoy a lower home loan interest rate. Hence, you should ensure to have consistent income stability. If you are earning without a break, the offered housing loan interest rate is lower. 

These essential aspects may affect your home loan interest rate, and you must consider them when you have housing finance to apply.     

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Major Factors You Should know that affects your Home Loan Interest Rates

It is the dream of so many people to either or building a home of their choice. In the event of funds shortage, the facility of home loans has emerged as a viable solution. 

As per your eligibility and other factors, you can avail of a significant amount. But since it comes with a longer tenor, the home loan interest rate charges are on the higher side. 

On that note, it would be good to look at a few factors affecting home loan interest rates. 

1. Your CIBIL score 

Your CIBIL score affects your payable home loan interest rates. It is the mirror of your creditworthiness and hamper’s the faith of your lender in loan repayments. If your credit score is lower, you may not get the loan approval. Even if you do, you may have to pay higher housing loan interest rates. If your CIBIL score is higher, you can get approval at a lower housing loan interest rate. You should work towards maintaining a credit score of 750 or more. 

2. Your home loan value 

The higher is your home loan price, the more you will have to pay as home loan interest rates charges. Hence, if you don’t need a large property, you can opt for smart home and pay lower interest charges. 

3. Your loan tenor 

While it’s good to pay a smaller EMI per month over a longer home loan tenor, it also means repaying higher interest charges. Therefore, you should try to opt for a shorter tenor and save on home loan interest charges. Yes, your home loan EMI may increase over a smaller tenor, but there will be considerable interest savings. 

Since you have an idea about factors affecting your home loan interest rates, you can implement the same and save more on repayments.  

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Step by Step Guide for First Time Home Loan Borrowers

Purchasing a home requires borrowers to a vital financial decision, and availing a home loan helps to fulfil this dream. Nonetheless, first-time homeowners often get confused about how they should make the most of availing these funds. 

Following is a step-by-step guide to help homeowners to make an informed decision. 

Step 1: Check the home loan EMI, eligibility, etc.

The first factor new home loan borrowers should check is the EMI payable and eligibility criteria to guarantee approval. In this regard, they can also use a home loan EMI calculator that computes the monthly instalment amounts efficiently. 

Step 2: Check the approval status of the property 

The property one is buying should have a proper and valid registration in the seller’s name. Depending on this factor, lenders approve the loan. 

Step 3: Choose an interest type 

Home loan interest rate is another crucial factor that borrowers will need to consider. Depending on the requirements, they can choose between fixed and floating interest rates. Since it determines the EMI component, borrowers need to be careful while making their decision. 

Step 4: Consider pre-payment and other charges 

Besides choosing housing loan rates, individuals also need to consider different charges that lenders often levy under various instances. For instance, pre-payment, foreclosure fees, etc., are some of the charges that borrowers need to pay. 

Along with that, they also need to know the documents required for home loan. It will expedite the loan verification process. 

Step 5: Choose a lender 

The last step comprises choosing the right lender. Borrowers need to compare home loan rates before settling for one. 

Therefore, following these steps, a first-time homebuyer can avail a housing loan and effectively optimise their borrowing experience. 

Read More: Documents Required for Home Loan Refinance

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4 Factors That Can Affect Home Loan Interest Rates

 

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 -

1. 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. 

2. 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.

3. 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. 

4. 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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Are you worried about the EMIs? Follow this Guide to Manage your Home Loan EMIs

 Availing a home loan from HFCs has become convenient, thanks to relaxed eligibility criteria. Borrowers searching for a substantial fund to purchase a residence or invest in home construction can apply for a home loan. Nonetheless, EMI repayment and interest payment is a monthly exertion.

This repayment burden can be tackled efficiently by employing specific ways for healthy savings. Individuals can compare different lenders in the market and opt for the competitive interest rate to reduce home loan EMI amounts.

Tips to reduce the EMI repayments on your home loan

• Go for a longer tenure

The repayment tenure significantly affects EMI and interest cost. One can reduce monthly instalments if an individual can opt for a longer home loan tenure. Nevertheless, it is essential to know that longer tenure can increase the burden of interest payment. Hence, this option should be chosen when an applicant is comfortable to repay a high interest rate.

• Make a substantial down payment

Applicants can increase the down payment to manage the EMI of a home loan. Through this process, a borrower can efficiently pay a substantial loan amount and reduce the outstanding balance. Moreover, this also helps to maintain low LTV ratio. 

• Estimate the EMI before applying

Borrowers should calculate the payable amount before opting for a home loan. This will help in understanding one’s capability of EMI repayment. In such scenarios, using a home loan EMI calculator can be helpful. With this tool, borrowers can estimate their instalments by entering interest rate, principal amount and the suitable tenure. 

• Opt for loan refinancing 

Financial institutions set their loan interest rate based on the current lending rate or Repo Rate of the RBI. Hence, existing borrowers who pay a higher interest rate against the home loan can opt for refinancing. Choosing a lender that offers a reasonable home loan interest rate helps in reducing EMIs significantly.

• Try negotiating with your lender

Individuals who maintain a 750+ CIBIL score can negotiate with a lender regarding interest rate reduction. 

Opting for these steps can help an individual to save significantly on their disposable amount. 

Read Also: Things to keep in mind while applying for a home loan

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Affordable Homes Are No Longer A Distant Dream

With rising inflation, it is becoming increasingly tough to find affordable housing. In cities like Pune which is a rapidly growing metropolitan the Union Government has published a notification regarding its infrastructure status to affordable housing projects. These are the ones which utilize 50% FSI or Floor Space Index for building with a carpet area of 60 sq. m.

To ensure people such as auto drivers with a household income of Rs. 20,000 or so being able to afford the house government has to declare some apartments for the poor section. This step will make sure that 10% of the poor populace can easily get its share of affordable housing to secure their future.

Moreover, leading lending institutions such as NBFCs offer home loan at an affordable home loan interest rate to this section of the society. Though, for this section or the so-called middle class to enjoy the benefits of additional funding they must be made aware of the benefits of home financing.

While Credai-Maharashtra discussed this situation and has urged for the solution of these residential projects in Pune. They said that they needed lenders to provide loan rate between the ranges of 6% to 7%. Besides, such areas must have the right infrastructure too for these residential projects to be made. The stamp duty can be waived off and the partnership models must be initiated where plots were given to the builders for construction of these affordable apartments.

Additional Read: Top 10 Most Affordable Cities in India to Buy Property

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