Buying a home is a dream for many Indians and many people avail of a housing loan from lenders to make this dream come true. However, if you are taking a home loan, you must try your best to keep your EMIs as low as possible and that is possible only if you get the best home loan interest rates.
The final home loan interest rate you get depends on several factors. So, what factors affect home loan interest rates? Let’s find out.
Income
The main thing that determines the interest rate on your home loan is your income. Everyone agrees that responsible people with more money have a better chance of paying back their debts than those with less money.
In the lending business, it is common for people with a high and stable income to get lower home loan interest rates as compared to people who have a lower income.
Type Of Employment
Borrowers with a stable source of income are considered reliable whereas those with an unstable source of income are considered unreliable and are regarded as high risk borrowers.
Those with consistent incomes, such as paid professionals, government and public sector personnel and employees of top private sector companies, are eligible for interest rates that are lower than those provided to the general population.
Within the group of self-employed individuals, individuals such as doctors and chartered accountants, usually get the best deals.
CIBIL score
When it comes to home loans, your credit score is very important because it not only affects whether or not you will get the loan but also the interest rate you will get. In general, a person’s CIBIL score shows how well off they are in terms of their income, current debt, borrowing habits, and history of paying back loans.
A borrower’s sense of financial responsibility is more likely to be taken seriously when they have a higher credit score. A good CIBIL score for A home loan is above 750.
Loan-to-Value (LTV) Ratio
LTV is a measure of how much of a property’s value can be paid for by the loan. Because there is more credit risk with a bigger loan, the interest rate on high-value loans is higher.
Putting down a bigger down payment can help reduce the amount of money you need to borrow and therefore, also the interest rate.
Location of the property
The interest rate that you are charged is affected, to some degree, by the location of the home that you are contemplating purchasing. The resale value of a home will be greater if it is situated in an area that provides convenient access to a variety of facilities and is well-connected.
The price of a home that is located in an area that is less desirable may be lower, and therefore, the home’s resale value will be lower. Similarly, newer properties are seen as having a higher resale value than older homes, which are regarded as having a lower resale value.
Lenders consider a home to be a rewarding investment when it has a high resale value, and as a result, they offer more favorable interest rates on loans secured by such a home. Higher interest rates will apply to properties that have a lower estimated future value.
Type of Interest Rate
If you’ve ever taken out a home loan, you’ve probably heard of terms like fixed, floating, and mixed interest rates. As the name suggests, fixed rates stay the same over the life of the loan, while floating rates change as the market does.
When interest rates are mixed, they stay the same for a certain amount of time and then change to a floating rate. Lenders usually charge a higher interest rate on fixed and mixed interest rates because they are thought to be riskier.
MLCR
MCLR stands for Marginal Cost of Funds based Lending Rate. This is the least amount of interest that a bank can charge. MCLR depends on factors such as the operating cost, marginal cost of funds, Cash Reserve Ratio (CRR), etc.
The MCLR is reset once a year, at which time banks look at the rate for people who already have home loans. Even if the MCLR changes between the reset date and the next reset date, the MCLR on the reset date is still used until the next reset date. This means that your interest rate can go up or down depending on how the MCLR rate changes.
Repayment Period
Loans that have a shorter repayment period have a lower interest rate (even if the monthly payments are larger) than loans that have a longer repayment period (which will have lower EMIs but a higher interest rate). Finding the appropriate term for your loan is simple when you use an online home loan calculator for EMI.
Final Thoughts
The points above tell you everything you need to know about lowering your home loan interest rate. Aside from the above factors, it is also important to have a long history of consistent work.
Lenders are more likely to give money at low interest rates to people who have worked for some years and whose income is steady or growing.
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