Top 5 Factors that Influence your Home Loan Interest Rate

Top 5 Factors that Influence your Home Loan Interest Rate

Since 2019, India’s housing credits have been associated with the repo rate of the Reserve Bank of India. While the repo rate was fixed at 4% in 2020, the most significant advantage for borrowers is the transparency of interest rates. They can now acquire the best home loan available in the market by comparing the offerings of different lenders.

A reduction in the repo rate is beneficial for floating interest rates. However, there are various other factors that lenders evaluate. Awareness regarding the same will allow borrowers to avail the most suitable loan terms with competitive interest rates.

Top 5 factors impacting home loan interest rate

If borrowers fail to obtain the best home loan, it can significantly impact their financial health. Choosing the suitable EMI amount will allow borrowers to repay on time and maintain a healthy credit report. Home loan interest rate is considered the most important among other factors that determine the lending terms.

Factors like inflation, economic condition, income are not in our control. However, the interest rate is something that individuals can influence to a certain extent. So, customers planning to avail the best loan scheme must know the factors affecting their home loan interest rates.

  1. Loan amount and repayment tenor

Choosing a higher loan amount accompanies higher risk and interest rates. To resolve this issue, individuals can make a considerable down payment. A higher down payment and a lower loan-to-value ratio provides the lender with relief and enables applicants to secure an affordable interest rate.

Besides, borrowers must be careful in choosing the repayment tenor. Opting for a longer tenor will make the EMIs affordable, but a shorter repayment tenor will reduce the overall interest payment. This is because, financial profile remains constant in the short-term process.

  1. Type of interest rate

To eliminate the hassle of interest-rate fluctuations, borrowers can opt for fixed interest rates. The benefit of choosing this type of interest rate is that it will not be affected by the changes in the market conditions, and borrowers can plan their repayment accordingly. However, one must note that fixed rates are a bit higher than floating rates and prepayments under such situations can lead to penalties.

On the other hand, floating rates can benefit borrowers from repo rate cuts and if one is expecting the fall of policy rates, he/she can opt for this type of interest rate.

  1. Property’s location and resale value

The home loan interest rate differs as per the property’s location, amenities, condition and other factors. Recent properties will definitely have high resale value and attract lower interest rate. However, properties with high values can be conveniently liquidated with the default of home loan and attract affordable interest rate due to lower lending risk.

  1. Financial profile

Usually, financial institutions consider the income source of applicants when levying an interest rate. Borrowers can avail the best home loan with a stable income, such as salaried people. Generally, salaried individuals are imposed with an affordable interest rate for their job stability and income certainty. Among salaried applicants, government and PSU employees are the most preferred as they work in a reputed organisation and are considered more stable to manage any economic downturn.

Apart from this, the CIBIL score also plays a crucial role in loan approval. Based on this score, lenders assess a borrower’s creditworthiness and reliability to pay the debt. Usually, lenders prefer scores above 750 to approve an amount. If required, borrowers can improve their credit scores by maintaining the credit utilisation ratio, paying EMIs on time, checking credit reports periodically, etc.

  1. Eligibility parameters and documentation 

While applying for any credit, borrowers need to qualify specific eligibility parameters and produce essential documents to ensure a hassle-free loan approval. Individuals who meet the following home loan eligibility criteria can successfully avail the desired loan amount at an affordable interest rate.

  • Age– 23-62 years (salaried), 25-70 years (self-employed)
  • Work experience- Salaried applicants must have 3 years of work experience and for self-employed individuals, business vintage should be at least 5 years.

Besides, applicants need to submit authentic documents, such as KYC, address proof, income statement, salary slip etc., to substantiate the eligibility. Also, borrowers can use an online home loan calculator to evaluate the eligibility and determine the loan amount they are eligible for.

Eligible borrowers can take a look at the pre-approved offers extended by reputed financiers on a wide range of financing options. These offers significantly simplify the loaning procedure and reduce the hassled of documentation. Therefore, individuals can check their pre-approved offers by mentioning their essential credentials.

Hence, the bottom line is that to avail the best home loan, individuals must be aware of these factors mentioned. Thereby, they can avail a home loan against the lowest interest rate and better servicing terms.

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