Learn About the Top 7 Factors That Influence Your Home Loan Interest Rate

When it comes to home loans, borrowers must try and avail of the lowest interest rate possible. Low home loan interest rates help borrowers keep their EMIs affordable and make the process of loan repayment easy and simple. Further, they also help borrowers save on the total interest outgo. So, if you are planning to avail of a home loan, try to avail of the lowest interest rate. Here are the top 7 factors that affect home loan interest rates. Understanding these factors will help you avail of low home loan interest rate. 

7 Factors That Influence Home Loan Interest Rates

Credit Score 

Your credit score is the one of the most crucial factors that affects the home loan interest rate you will get. A high credit score, i.e. anything between 750 and 900, indicates high creditworthiness and ability to repay loan on time. So, if you want a low interest rate home loan, maintain a good CIBIL score. 

Tenor 

When a borrower increases the tenor of the loan, they increase the risk involved for the lender in lending money to the borrower. Therefore, borrowers who want low home loan interest rates must avail of a short tenor loan. 

LTV Ratio 

The LTV ratio refers to the percentage of the total value of the property that can be sanctioned as a loan. In the case of home loans, the LTV ratio can go up to 85%. However, a high LTV ratio indicates high risk for the lender. Therefore, when borrowers reduce the LTV ratio by increasing the down payment, they get offered lower interest rates on home loans. 

Income 

Lenders also check a borrower’s income to assess their repayment capacity. Borrowers are advised to use a housing loan calculator to calculate the home loan amount they qualify for. Applying for a loan amount that you qualify for or something lower will not only lead to quick loan approval but lenders offering you loans at low interest rates. 

Quality of the Property 

Home loans are secured loans. Under these types of loans, a borrower pledges the property they plan to buy with the loan money as security. In case of loan default, the lender can sell the property for loan recovery. Therefore, the quality of the property – its location and resale value – also affects the home loan interest rates. Properties located in central locations and having high resale value fetch borrowers a lower interest rate than properties located on the outskirt and having low resale value. 

Interest Rate Type 

The interest rate regime you opt for will also have an impact on the home loan interest rates you get. There is a higher risk involved for the lender in the case of fixed home loan interest rates. Therefore, borrowers who avail of home loans on fixed rates of interest end up paying higher interest on their home loan. On the other hand, borrowers who avail of home loans on floating interest rates get offered better loan deals. 

Repo Rate 

If you are on a floating rate of interest, the interest rate you pay on your home loan will also depend on the repo rate. If the repo rate goes down, so will your home loan interest rate. On the other hand, if the repo rate goes up, your home loan interest rate will increase too. 

Final Words

Home loans are a long-term commitment. Therefore, one must avail of these loans after proper planning. Use a housing loan calculator to work out your EMIs in advance and avail of a loan amount that you can easily repay.