Home loans have become a go-to option for many home buyers due to their convenience and easy availability. With many financial institutions in India offering home loans, the deals have become competitive and beneficial for home buyers. Getting a reduced home loan interest rates will make a drastic difference in your overall budget.
No matter how much you find the lenders offering the best interest rates, there are things you could do to bring down the interest rates even further. Getting to know them will enable you to choose the best home loan deals.
This article brings you to the significant factors affecting home loan interest rates. Understanding these will make your EMI outgoing as affordable as possible. Let’s check them out.
Major Factors That Affect Your Home Loan Interest Rates
Type of Interest
The home loans offer two types of interest rates:
- Fixed interest rate
- Floating interest rate
You will have to choose between the two before you opt for the loan. Floating interest rates keep changing based on the Reserve Bank of India (RBI) changes, while fixed interest rates stay the same throughout the year. Floating interest rates are beneficial if you opt for a shorter tenure, while fixed interest rates are great for loans with a shorter term.
The location of the property does impact the interest rates. If your property is in an urban area at a good locality with excellent connectivity, it is considered a lucrative property. Higher the resale value, lower the risk taken by the lender and hence they do not hesitate to offer you lesser interest rates. Older properties or newer properties with low resale value are charged higher interest rates.
The shorter loan tenure reflects higher home loan EMI, but the lower interest rate and longer loan tenure result in a higher interest rate. Opting for a shorter term to reduce EMI could probably result in defaulting the loan without proper planning. Ensure that you calculate your tenure beforehand using the home loan EMI calculator. Adjust the sliders provided in the calculator to change the tenure according to the EMI to determine the optimum loan tenure you can opt for without disturbing your monthly budget. Timely repayments are essential for a loan and hence calculate a comfortable EMI that fits your bill.
Your Job Profile
Individuals with a stable income are considered low-risk borrowers. Producing the documents of all the income you receive will help lower your risk, enabling the lender to offer you a better interest rate. You are considered a low-risk profile if you are a salaried professional, PSU or government employee or working in leading MNCs. In the self-employed category, documents and chartered accountants are considered as low-risk profiles.
Credit scores are the records maintained by CIBIL to validate your timely credit card payments and financial discipline. These records contain your past debts and your credit card history. When you apply for a loan, Lenders request the CIBIL for your score. If the score is above 700, your loan application is more likely to get accepted. Lenders hesitate to approve loans for individuals who have low credit scores, and if at all they approve, the interest rates offered will be on the higher side.
Most lenders finance a maximum of 90% of property value. It means that you will have to pay at least 10% of your property value as a down payment. Increased down payment reflects a lesser loan amount to pay, which leads to lesser interest rates.
Adding a Co-applicant
Applying for a home loan along with a co-applicant increases the chances of availing of a home loan at lower interest rates. The co-applicant can be your spouse, parents or siblings. Having a co-applicant with a stable income assures the lender that you will be able to repay the loan. Hence you will be offered home loans at lower interest rates with increased loan eligibility.
Prevailing MCLR Rates
The MCLR (Marginal Cost of Funds Based Lending Rate) is the interest rate value below which any financial institution cannot lend you. This rate is fixed by the Reserve Bank of India (RBI). The RBI changes this annually, and the lenders review the rate for existing home loan borrowers. Hence your interest rate can increase or decrease depending upon the variation in the MCLR rate.
Understanding these factors will help you understand your home loan interest rates. Determining the ones, you can change and those beyond your control can help you conclude a truly affordable deal. So, do your research well and choose the best lender out there who is trustable and offers you the best home loan interest rates in the market.
Visit Mrbusiness360 for a more related informational blog.