The cost of a home loan relies on several factors, including the external benchmarking system of the RBI, the repo rate. Apart from that, home loan interest rate also depends on the eligibility of borrowers. Due to the significant tenor of housing loans, even a slight reduction in rates can lead to substantial savings.
Since even a 0.5% difference in the interest rate can bring significant change in the total interest cost of the housing loan, everyone aims for getting the best deal possible.
What are the main factors that affect the home loan interest rate?
These are the main factors that govern interest rates for home loans.
- Repo rate
The repo rate is the rate that the RBI charges when it lends funds to financial institutions. Based on this, HFCs determine their respective interest charges for customers.
- Loan amount
Most HFCs charge a higher home loan interest rate for significant loan amounts and vice versa.
Opting for a higher down payment can reduce one’s EMI outgo significantly. A loan EMI calculator can really help show what to expect as the monthly EMI for the loan amount one wishes to avail of.
- Credit score
Most HFCs consider a prospective borrower’s credit score as one of the main factors when evaluating their application for a home loan. The ones with a credit score of 750 or above are more creditworthy and have a much higher probability of their loan application getting approved at significantly lower interest rates.
Since such reports could be erroneous, correcting credit report errors and detecting unauthorised transactions are also important for maintaining a good credit score. So checking credit or CIBIL score for home loan at regular intervals is a healthy habit to build for everyone.
Additionally, there is a home loan interest tax benefit that individuals with high credit score do take advantage of as a sound financial decision.
- The type of interest rate
Home loans have 3 kinds of interest rates – fixed, floating, and mixed interest rates.
Fixed and floating interest rates for home loans are self-explanatory. Individuals get to choose between fixed and floating interest rates. However, in mixed rate loans, there is a fixed interest rate for a certain period of time, after which the floating rates become applicable.
To make up for loss in interest income during the period floating rates are levied, HFCs usually levy a higher interest on the fixed part of mixed rate loan options because it comes with a higher risk for the lender.
- Job profile
HFCs prefer lending to individuals with stable jobs or source of income. So, salaried individuals are charged a lower rate of interest than most self-employed professionals.
Among these salaried individuals, government employees are favoured most. And among the self-employed, doctors and chartered accountants get preference.
Some HFCs provide pre-approved offers to simplify the loan process. These offers are available across several financial products such as home loans, loan against property and more. Individuals can easily check their pre-approved offer by providing their basic information such as name and contact details.
Keeping these factors in mind while taking financial decisions can help one’s chances at loan approval, securing the lowest home loan interest rate possible.
Read More : https://www.thoughtsexplorer.com/