Financial institutions are currently offering housing loans at affordable interest rates due to the reduced policy rates by the Reserve Bank of India. Currently, the repo rate stands at 4%; hence lenders levy an affordable home loan interest rate for borrowers.
However, if an individual is considering a home loan, it is essential to check a few essential factors affecting the interest rate.
5 factors that affect home loan interest rate
The major factors affecting the interest rate are described in detail below:
1. CIBIL score
The CIBIL score for a home loan is by far the most critical factor a lender considers before disbursing a loan amount. Lenders consider a CIBIL score above 750 as ‘excellent’ as it describes a candidates disciplined payment history. Apart from it, it increases the trustworthiness of a candidate. Thus, a candidate with a good credit report and excellent CIBIL score is ideal for a home loan. Also, due to their creditworthiness, lenders often consider lowering the home loan interest rate.
2. Property value
The value of a concerned property also affects the interest rate considerably. Properties in a locality with all the amenities will fetch a higher price than a property in a remote location. In case of credit default on a home loan, lenders can quickly get the loan amount by liquidating the concerned property from a buzzing site. However, availing of the loan amount from a property from a remote location might be challenging. Hence, financial institutions levy an affordable interest rate on high-value property.
3. Income
Lenders often prefer applicants with high incomes. This is because an individual with a high-income source is more likely to pay credits on time without defaulting. Apart from it, these individuals are also more capable of paying the loan amount without facing financial challenges. Hence, during the application, it is advised to list every income source and add a co-applicant for faster loan approval.
4. Loan amount and tenor
A loan amount is directly related to the home loan interest rate. Hence, a high loan amount will fetch a higher interest rate. So, while availing of a home loan, it is advised to make a higher downpayment to minimise the loan amount.
Apart from it, a loan tenor is inversely related to the interest rate. Therefore, individuals opting for a longer tenor will likely pay lesser EMIs than individuals with a shorter tenor. Hence, applicants must choose a home loan tenor effectively.
5. Benchmark rates
As mentioned above, the benchmark rates decided by the Reserve Bank of India significantly impact home loan affordability. Therefore, a lower policy rate will make a home loan more affordable and vice-versa.
But, before a home loan application, lenders advise opting for a housing loan interest calculator to get financial details, including EMI concerning the loan. This calculator is a free online tool and provides an amortisation schedule that contains a detailed breakup of finances throughout the tenor.
Selected financers also extend pre-approved offers that simplify and expedite loan processing. Such offers are available on a range of financial products like loans against property, home loans, etc. You can enter your name and contact number to check your pre-approved loan offer.
Read Also: How to Find the best Housing Loan Interest Rate in India?
Hence, before availing a home loan, it is important to check all the factors mentioned above that can affect the home loan interest rate. This rate will decide the overall affordability of a home loan and influence financial liabilities.
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