The availability of several government and developer concessions like stamp duty exemptions is making it easier for homebuyers to invest in real estate. On the other hand, RBI’s decision to keep the repo rate unchanged has been equally beneficial since that has made current home loan interest rates much affordable.
However, the changing nature of the home loan market and additional factors influencing interest rates can easily turn the tables and make it challenging to acquire funds. To avoid that, homebuyers should be aware of the changes taking place in the home loan sector, including the aspects affecting the loan rates.
Factors influencing housing loan interest rates
A housing loan is generally considered one of the biggest financial commitments, mainly because it involves obtaining a large amount. Therefore, a little difference in the rate of interest can impact the overall cost, making it difficult to handle the monthly instalments. It is essential to know which factors determine the lending rates, including the approach you should take to make them affordable.
- Credit score
Due to the secured nature of home loans, borrowers inevitably get certain relaxations that help negotiate better deals with lenders. However, credit score plays a significant role when lending institutions evaluate your credit profile before sanctioning such a large amount. Your creditworthiness gets assessed on the basis of your CIBIL score and repayment track record.
It is necessary to keep your credit history clean by making timely payments and having a good mix of secured and unsecured credits. Following these tips should keep one’s CIBIL score at 750 or above consistently. Make sure to monitor your credit report once in a while so that you can work on the factors impacting your credit score.
- Interest rate type
In most cases, borrowers fail to pay heed to this particular aspect before submitting the home loan application. As a consequence, they end up opting for the kind of interest rate lending institutions are offering, only to find that it will cost them a fortune after a point.
Generally, lenders offer two kinds of interest rates: floating and fixed interest rates. While the first one keeps changing depending on the market conditions, the latter one remains the same during the entire repayment tenor.
Both these variants come with some advantages. However, floating interest rates are relatively lower than fixed housing loan rates. So before you go ahead and apply for the loan, make sure to check which one seems convenient to you and your repayment schedule.
- Property location
Home loan interest rates vary depending on your chosen property location and its condition as well. Lenders usually go for an inspection after receiving the loan application and levy interest rates based on these aspects.
For properties located in remote areas, borrowers automatically charge a higher rate of interest because these are difficult to liquidate in case of delinquencies.
- Loan term
Your repayment tenor plays a substantial role in making your home loan interest charges affordable. Even though financial institutions generally offer substantial repayment flexibility to pay off the loan, typically ranging from 15 to 30 years, longer terms increase the interest rates.
Opting for a shorter tenor might seem difficult initially due to the hefty EMIs, but it is much convenient as you get rid of your financial burden quickly. Additionally, you can avoid paying excessive interest charges every month.
- Income stability
Financiers generally set certain home loan eligibility parameters that applicants have to meet first, and having a steady source of income falls under one of those necessary criteria. An inconsistent income curve inevitably affects your loan eligibility as well as interest rates.
Even while applying for pre-approved offers provided by reputed housing finance companies, this particular aspect comes under assessment. If you have a stable job and a regular source of income, you can easily get attractive deals on several financial products like home loans, loans against property, etc. Make sure to check your pre-approved offer beforehand using your name and contact details.
- Loan amount
To make the most of the facilities of secured loans, borrowers often end up applying for a high-value loan. And, to avoid the risk of repayment default, lenders inevitably levy a higher interest rate on these loans.
In that case, a great solution would be to submit a substantial amount as a down payment. This way, lenders do not have to bear a higher risk because of paying a larger portion of property value, and the interest rates will not be affected either.
Apart from these factors, benchmark rates, credit utilisation ratio, etc., play important roles too in influencing your home loan interest rates. However, you focus on meeting the required criteria first to negotiate for better deals.