In the backdrop of the recent economic slowdown, home loan interest rates have been cut down by almost 90 basis points by different lenders. While this measure has been adopted from the end of financial institutions extending credit, there are a few other factors that impact loan interest rate.
Few of these include –
1. Principal of Loan
When a borrower opts for a low down payment, the home interest becomes high owing to high value of the loan. The convenience of immediate financial ease comes with a rider of high interest payment.
2. Credit score of borrower
Home loan EMIs, to a large extent, is determined based on a borrower’s credit score. The score reflects the borrower’s repayment history.
3. External benchmark of lender
Not all lenders follow repo rate as an external benchmark in determining home loan interest rate. Hence, even though there may be cuts in the repo rate, the same might not reflect as a corresponding reduction in rate of interest.
4. Property’s resale value
If the location of property lacks proper connectivity, resale value would not be considered to be high. In such an instance, interest rate would also be on the higher end.
5. Source of income of a borrower
If a borrower is employed at a reputed multinational corporation or government service, his/her source of income is considered stable, translating to reduced risk. The rate of interest of home loan for such a borrower is usually low.
Additionally Read: Most Important Factors which Affect your Home Loan Interest Rates
It is crucial for potential borrowers to be mindful of these factors before applying for an advance to ensure they avail the most competitive interest rates in the market.
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